Pump Price Run-Up Finally Halted

When will the deep price-cutting begin?
Photograph: Shutterstock

CAMARILLO, Calif. — After 16 weeks of street price increases, the U.S. gasoline market relented with a 3.41-cents-per-gallon (CPG) price cut over the past two weeks, according to the most recent Lundberg survey of U.S. fuel markets.

The total retail price rise was 65.6 cents before this small drop, so the net increase is a steep 63.09 CPG since Jan. 11.

The current U.S. average regular-grade price is $2.9321. It sits 6.43 cents under, rather than above, for a change, its year-ago point. On March 18, 2018, the average price was $2.9964. It had been in the throes of a long upswing. The current discount to a year ago is a comfort to gasoline demand, which has already entered its high season.

The pump price drop may prove to be a harbinger of deep declines to come, but that's predicated mostly on the speed at which U.S. refiners complete ongoing repair projects, assuming that a degree of oil price inertia continues.

The nation's refining capacity utilization rate is now above 90%, but that compares low so close to June, one of the grandest gasoline demand months of the year, along with May, July and August. Several refineries are still suffering gasoline sales prevented due to work in progress—this after prolonged suffering from important oil buying price increases.

The biggest factor in gasoline price and its direction is the price of crude, but idled U.S. barrels of capacity come a close second right now.

Crude-oil prices are always the result of myriad influences pulling up and pushing down. That opposition is thrown into relief when the two forces seem approximately equal in power, and now is one of those times.

The additional Middle East tensions due to alleged sabotage of producing country assets are adding to the pulling up of price. Down pulls include continued strong U.S. oil production, plus some newly added pessimism regarding China oil demand.

Often unsung is the effect on pump prices of downstream industry margins on gasoline. The role of margin within price—strong enough, Lundberg historical data shows, to sway an up or down price trend—is unsung for two reasons: Outside of the gasoline industry, many people do not know that each point in the supply chain has to make a profit, seeing the final retail price as if it were simply determined utility-style with all costs well covered. And downstream, gasoline margin is also unsung because industry participants usually avoid talk of margin because they need to shy away from unfair criticism when margin is higher than usual.

Currently, gasoline margin levels appear sufficient for both the refining and retailing sectors, so they do not suggest themselves as immediate gasoline price predictors. Both margins did lose a bit of ground in these two weeks; refiners were relieved of a few cents per gallon equivalent, and retailers gave up a modest 1.39 CPG.

Retail gasoline margin at 18.87 cents on regular grade is favorable after acutely low margins of March and early April. Meanwhile, many are still recovering from several weeks of prior margin deprivation.

Several markets where margin averages less than a dime are in Southern and Southwest areas of the country, including Tulsa, Okla.; Baton Rouge, La.; Charleston, S.C.; and Albuquerque, N.M.; they were joined by Denver, where margin in the May 17 snapshot was in the red. Denver retailers got a 7.62-CPG wholesale price increase on average, but the average street price budged up a mere 0.71 cents.

If oil price continues to be a mostly neutral impact on gasoline price, then the main determinant will be refinery project completions, ongoing but with several taking longer than expected. So one of the reasonable results is further retail gasoline price cuts, possibly small and gradual—followed by vigorous price slashing as the use rate comes roaring back.

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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