OPINIONFuels

Pump Price Stability, Margin Volatility

Average retail gasoline price still $2.25 per gallon
Photograph: Shutterstock

CAMARILLO, Calif. — The U.S. regular-grade gasoline pump price slipped down eight hundredths of a penny in the past two weeks, putting it at $2.2458, according to the most recent Lundberg Survey of U.S. fuel markets.

During the two weeks of July 24-August 7, it rose twelve hundredths of a cent, to $2.2465. Between July 10 and July 24, it climbed half of one penny, to an average $2.2453. Rounded to the nearest penny, the price has been $2.25 for a month.

It had been just over $2.24 back on July 10, right about where it is now. There has been six weeks of national retail gasoline price stability. (The average retail diesel fuel price has been similarly stable; in the past two weeks it did not change.)

Not so for retail gasoline margin: It shrank by 5.43 cents per gallon (CPG) in the past two weeks, after expanding 4.11 CPG during the prior month.

The August 21 margin is 22.05 cents, a delta between wholesale and the street that is insufficient over time. This two-week loss is because retailers overall failed to pass through their wholesale buying price hikes during the period, which amounted to 5.35 CPG nationally and weighted by class of trade.

The hikes were steepest in the Gulf Coast states; for unbranded rack, a 10.35 CPG jump, taking place mostly in the past week. Last week saw notable wholesale price rises elsewhere as well (East, Midwest).

Slightly higher West Texas Intermediate (WTI) prices, propped up some by U.S. dollar weakness, were a cause, and were only partially passed through by refiners, who have gained a few pennies of gasoline margin, a margin still inferior to its full-year 2019 width. As in other sectors, refiners are closing facilities or attempting to repurpose them, and laying off staff.

A bird's eye view would show both downstream sectors, refiners and retailers, fluctuating between approximately nearly doing OK and not doing OK, in terms of gasoline margin.

National average retail gasoline prices also owe their stability to ongoing supply overhang versus summer demand that failed to live up to the norm. Things are probably going to change now, not for the better: A broadside hit to demand is looming next month.

The U.S. demand curve slants down in September anyway, despite the important gasoline consumption role of the school commute. This time, expected widespread failures of schools to open are sure to damage gasoline demand. Stocks are still overly large as summer wanes and refineries' latest use rate of nearly 81% of capacity is high in the face of such weak demand.

Unless there should be an extraordinary jump in oil prices or dramatic event curtailing gasoline supply, both wholesale and retail gasoline prices are going to tumble.

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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