Pump Price and Margin Both Drop

Oil’s ‘risk premium’ worsens
gas prices
Photograph: Shutterstock

The national average retail price of regular-grade gasoline fell again in the past two weeks, this time 4.98 cents lower to $3.5324, according to the most recent Lundberg Survey of U.S. fuel markets. This makes a total decline of 23.94 cents in the past nine weeks.

Another plus for motorists is a current discount of 14.42 cents per gallon (CPG) under the year-ago price. But the extended pump price decline may soon end if it hasn’t already, because oil prices moved up and so did wholesale gasoline. Neither U.S. refiners nor gasoline retailers passed through the price hikes imposed upon them, so both downstream sectors suffered significant gasoline margin losses. West Texas Intermediate’s (WTI) near-month futures price rose $5.20 per barrel, or 12.38 CPG equivalent. The Lundberg weighted average wholesale gasoline price rose by 7.78 cents.

The nation’s gasoline retailers have lost 12.65 cents of their margin. The current average margin is 32.97 cents, about 6 cents skinnier than it was in early May.

For the downstream to recover from margin losses while gasoline demand looks to continue weakening will be difficult of course, but at some point especially in some markets the need to pass through higher petroleum and nonpetroleum costs may soon be acute.

Although the rise in oil prices put WTI at not especially high $80.73 per barrel, as that benchmark reached nearly $87 per barrel in early April, the market has noted a sharpening of supply risk of late, due both to Middle East tensions and to U.S.-Russia tensions. As Hezbollah attacks on Israel stepped up, Israel is reportedly sharpening its scrutiny of a future need to invade Lebanon. And shortly following Ukraine gaining a green light from the U.S. to employ U.S.-supplied weapons against Russia inside Russia itself, Russian war submarines are in the Caribbean.

These are adding to other elements of risk premium that include the weakening U.S. oil production and the much-depleted U.S. Strategic Petroleum Reserve.

In the past two weeks, Cleveland retailers gained regular grade margin, while Chicago retailers lost: In the Chicago metro area, the average retail price slipped 6.31 cents, while wholesale climbed a big 20.24 cents, cutting the average margin down by an extreme 25.93 CPG.

In Cleveland, wholesale was down 3.52 cents, but retail was on the rise with a bump of 9.22 cents, allowing margin to improve by 12.74 cents. Cleveland margin is currently a comparatively healthy 44.66 CPG. Chicago’s is a less-than-stellar 37.85 cents.

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