CAMARILLO, Calif. -- Retail gasoline prices ceased their long down trend and turned upward in the past two weeks. Self-serve regular now averages $2.2131,up 8.01 cents since December 2, according to the most recent Lundberg Survey of approximately 7,000 U.S. gas stations.
There was a total of nearly 88-cents-a-gallon drop since the peak price of September 9 at $3.01, as hurricane damage to refineries was repaired and demand for gasoline briefly recoiled from high prices. Now, a modest rebound [image-nocss] in crude prices and in our demand growth, accompanied by the comeback in refining capacity, the market is recovering. Nearly all domestic capacity is back, upping the call for crude, while the economy's strength is supporting motorist demand for product.
Of the approximate 50-cent hike in pump prices this year, more than 80% went to crude oil producers, and only about a tenth went to refiners' margins while the remaining approximate 10% was split between tax collectors and gasoline retailers. It will be a year to remember from those points of view, and for industry pride in refiner, distributor and retailer travails during deadly hurricanes, market upheaval, and government officials casting aspersions on nearly everybody in the business.
While the end of 2005 will hold just small gasoline price increases if any, in 2006 it's another story: There are four elementsall coming at the industry through government decisionsthat will converge. Two EPA sulfur-reduction deadlines (gasoline on January 1, and a drastic June 1 sulfur cut on diesel whose costs and distribution problems could well affect gasoline too), and two outcomes from the Energy Bill (mandated sales of ethanol, adding to cost, and the denial of any safe harbor from MTBE lawsuits, cutting the use of MTBE and therefore removing that low-cost supply from the gasoline pool), assuming continued high crude prices and growing gasoline demand, suggest a pump price surge of at least 57 cents by late July. Or maybe much more.
At the very least, coping with how to explain to politicians and industry critics about those four elements hitting the market in 2006 will be a public relations challenge for retailers, marketers and refiners.
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