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Fuels

Pump Price Reaches $3 Mark

Tough times for retail margin

CAMARILLO, Calif. -- The national average retail price of regular-grade gasoline is now $2.9964. It climbed 9.57 cents per gallon in the past two weeks and has jumped 40.63 cents over the past three months, according to the most recent Lundberg Survey of U.S. fuel markets.

The nearly $3 price sits 59.37 cents over its year-ago level. During May, June and July 2017, prices were in decline, adding to the spread. The gap over last year is contributing to motorists' shy gasoline demand. Demand growth is meek, adding to the difficulty for gasoline retailers to pass through recently higher wholesale buying prices, translating to low margins.

The latest retail price rise comes from another ratchet up by crude-oil prices, and from the tail end of the cost pass-through due to compliance with seasonal federal caps on vapor pressure. Crude-oil prices didn't zoom during this period, but have kept above $71 per barrel for near-month West Texas Intermediate futures in the past few days. Likely, the recently added geo-petro-political risk factor, from the U.S. decision to exit the Iran agreement and resume of sanctions, are fully built in—as is the realization within oil trading that producer Venezuela's strength continues to drop. 

Meanwhile, world demand for petroleum is supporting oil prices. And as Phil Flynn observed in his May 16 blog for The Price Futures Group, U.S. crude-oil exporters have the incentive of high Brent oil prices in Europe to send barrels abroad. As for the summer gasoline blend, the deadline at the retail level is June 1, most parts of the nation already having met their federal deadlines. 

The summer specs gasoline cost factor is one reason U.S. refiners have improved gasoline margin of late; another is their ongoing need to recover margin lost in late 2017 through March.

Meanwhile, retailers are still in the throes of tight margin. Nationally, margin was eroded 1.64 cents in the past two weeks to 13.19 cents as hefty wholesale price hikes were not fully passed through.

Skinny times continue, notably in several Gulf Coast markets where many have lost several cents. When wholesale prices leaped 16 cents in Baton Rouge, La. between May 4 and May 18, and the retail price response was barely over 9 cents, the weighted average margin went from bad—under 7 cents on regular—to worse, nearly that amount in the red. Even West Coast retailers with their comparatively high gasoline margins are skating on thin ice, due to their especially high costs of doing business.

Weak gasoline demand growth, with competition for sales to consumers who are facing weeks of price hikes and a big price premium to the year-ago price, is suppressing retail margin recovery. The pressure on retail margin to expand is reason enough to expect some further pump price rises, even if modest—and even if crude-oil prices are satisfied to stay where they are.

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.
 

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