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OPINIONFuels

Pump Price Dips as Supply-Demand Balance Shifts

Lack of oil price volatility a big reason consumers are paying less
Photograph: Shutterstock

CAMARILLO, Calif. — The national average pump price is down 2.70 cents per gallon (CPG) for regular grade to $2.6609, according to the most recent Lundberg Survey of U.S. fuel markets. This was no thanks to crude-oil prices, which were notably stable.

Lack of oil price volatility—a nearly total lack—was a big reason American consumers are paying less than they were two weeks ago.

In the absence of a significant oil price change, the supply scene is impacting price more obviously than usual. When retail prices were rising in late September through early October, oil prices displayed very little drama. Refined product output from U.S. refiners had been curtailed due to the many maintenance and repair projects underway. Now, with several of those complete, the nation's capacity use rate has jumped dramatically, to 89.5%.

While capacity has use improved, seasonal demand has also contributed something to the price drop. It is traveling along its normal path into the seasonal trough. And, in fact, demand will suffer a special kick down this coming week as usual, with the interruption of the work commute due to the Thanksgiving holiday, a punctuation point in this shift in the gasoline supply-demand balance.

The sensitivity of gasoline price to a change in supply was even more pronounced in California, where the state average pump price crashed 18 CPG, to $3.86. The price was an elevated $4.1592 as recently as Oct. 11, and two weeks ago it was $4.0422. California and the West had suffered important refining capacity idling and now are benefiting from ongoing normalization of operations.

As more refinery projects are concluded around the country, as the seasonal demand path continues toward winter and assuming the lack of oil price volatility is sustained, then a decline of a few more pennies in the pump price can be expected.

Retail margin nationally suffered a 2.37-CPG loss in the past two weeks, sitting now at 21.45 cents. It's skimpy and awaits a recovery period. Meanwhile, regional margin pictures are starkly different. In the West, margin rose more than 9 cents; wholesale price cutting was far more than street price cutting, for now awarding regional retailers an apparent eye-popping margin of close to 56 CPG. But Gulf Coast retail margin overall is terrible: not much over 7 CPG, clearly unsustainable even in the lower-cost markets that are common in the region. The weighted average regional wholesale price of regular grade gained while the retail price dropped, and the timing cost Gulf retailers an average of 4.37 cents.

Another meeting of the Organization of the Petroleum Exporting Countries (OPEC) looms in early December. While one can't claim the OPEC meeting will not touch U.S. gasoline prices, because hundreds of events and issues do touch it all the time, it would take more than an extra-long extension of the oil production curtailments by key member nations and collaborators to awaken this world oil market—which has been pretty peaceful during nearly all of 2019. If oil is somnolent, and if U.S. pump prices do edge modestly down, then retail gasoline margin may well edge modestly up.

Camarillo, Calif.-based Lundberg Survey Inc. is an independent market research company specializing in the U.S. petroleum marketing and related industries.

Click here for previous Lundberg Survey reports in CSP Daily News.

Trilby Lundberg is publisher of the Lundberg Survey of U.S. fuel markets.

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