CAMARILLO, Calif. —Gasoline prices have been following those of crude oil very closely, but between Feb. 22 and March 8, crude-oil prices edged down slightly while gasoline prices continued their upward march, according to the most recent Lundberg Survey of U.S. fuel markets.
The gasoline market's own drummer, with its punctuating beats of seasonally required reformulations, is the main reason it is going its own way, raising price without crude oil's apparent permission. As this column noted Feb. 25, idled capacity due to refinery maintenance and the long period of too-low refining margin on gasoline have also been part of gasoline's mix of price factors.
In the past two weeks, the national average regular-grade retail gasoline price climbed another 6.22 cents to $2.5026. The average wholesale price weighted by buying class of trade climbed 10.56 cents. So retail margin shrank by 4.41 cents. It is now a mere 10.67 cents per gallon—not sustainable.
Gasoline had to go its own way thanks to its own dynamics, accentuated by timing: Spring/summer reformulation deadlines are being met as the various federally regulated lower-vapor-pressure maximums kick in around the nation at wholesale and at retail. The deadlines are a bit of a patchwork quilt, and the reformulations are underway. As much of the county requires the higher cost blends by June 1 at the retail pump, wholesale price increases come in a procession. Refiners will continue passing through cost increases during the next two months.
Also, some refining capacity is offline, precisely at the time the vapor-pressure-related cost increases barrel down the supply chain. Repairs and maintenance projects are preps for maximizing gasoline supply before the seasonal surge in demand. Ever since 1989, when the spring/summer blends became law, refiners have done both at once. The reformulations themselves cause some supply crimping, and combined with necessary idling of capacity, price often responds by rising. This is a big reason that gasoline prices have climbed despite oil prices receding a little.
Another coinciding of current developments is the long-endured, very low refining margin on gasoline. Now refining margin on gasoline has widened nicely—but the reprieve means nothing on those gallons not produced, idled for presummer work projects.
Retailers, meanwhile, got no reprieve: On average, regular-grade margin shrinkage since Jan. 25 is a whopping 13.38 cents. In a mere six weeks, it has been slashed by more than half.
The refining and retail sectors of the industry could do with a salute in the rising cost parade for hanging in there through thick and thin to be there for their customers—but they aren't likely to get it, especially when crude-oil prices cannot be clearly blamed for higher prices.
Camarillo, Calif.-based Lundberg Survey Inc. is an independent market research company specializing in the U.S. petroleum marketing and related industries.
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