The U.S. average retail price of regular-grade gasoline dropped 11.81 cents per gallon (CPG) in the past two weeks, to $3.8685 per gallon, according to the most recent Lundberg Survey of U.S. fuel markets.
In the prior two weeks, it rose 6.68 cents. Both that rise and the subsequent drop of nearly twice that amount came mostly from oil price swings. West Texas Intermediate (WTI) near-month closed at $90.03 per barrel on Sept. 22, got as high as $93.68 on Sept. 27, fell moderately from there, and then plunged dramatically to $82.79 by Oct. 6.
WTI’s two-week decline was $7.24 per barrel, equating to 17.24 CPG.
So on that simple basis, we are in for some further down moves for the pump price. And that seems likely due to other factors as well, including gasoline demand crawling decidedly away from its summer highs as the lower-demand season progresses. (The higher vapor pressure allowed in cooler weather makes a small contribution to lower the price, accentuated some by the early allowance of higher RVP via government waivers.) However, in addition to the seasonal dips in demand, motorists are being repelled by economic conditions.
The nearly 12-cent discount that the current average pump price represents compared with its year-ago level is, right now, just a drop in the bucket, not an incentive for healthy demand, to hard-pressed consumers.
A big, very big, reason that some further retail price cutting may occur is retail margin, which is having a moment: Due to timing with extreme rack price cuts taking place at the end of last week, retail margin ballooned by 30.71 cents to an outsized 70.35 CPG.
That mega-margin can’t be expected to last more than mere hours; many retailers will be able to rapidly pass through rack price cuts to the street, beckoning consumers to return.
It was partly because of poor gasoline demand that refiners, having suffered big oil price hikes, were slashing rack prices to chase sales.
The overall national utilization rate of total refining capacity is now down 4.6 percentage points to 87.3%, to adjust for both seasonal and year-on-year gasoline demand realities. So refining margin on gasoline took a direct hit and needs some recovery soon.
But the Oct. 6 swollen retail gasoline margin can be expected to deflate more than refining gasoline margin can inflate, resulting in a pump price decline of perhaps 7-10 cents near term.
However, that was prior to the Oct. 7 attack by Hamas on Israel by air, sea and land, so that Israel states that it is now at war. At this writing there is no window on that WTI futures “thinks” the attack means for the market. It would be normal, though, for oil prices to change moderately on the upside for at least some amount of risk premium in case the attack on Israel transforms into a regional oil supply crisis, when Israel and perhaps other countries’ responses become clear—which would bring severe oil price hikes.
So the apparent likelihood of further retail gasoline price declines would be negated in the event that oil prices zoom upward immediately.
Among the expert analyses of Middle East oil events on record, some point to the Biden administration’s option of releasing volumes of the U.S. Strategic Petroleum Reserve (SPR) as an oil price hike suppressor. But as Phil Flynn at pricegroup.com points out, after deep draining the SPR now holds just 17 days’ worth of supply.
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Trilby Lundberg is publisher of the Lundberg Survey of U.S. fuel markets. Lundberg Survey Inc. is based in Camarillo, California.