CAMARILLO, Calif. -- Retail gasoline prices fell another 7.79 cents per gallon in the past two weeks, with regular unleaded at $2.2012 on October 20. It is a total drop of 82.44 cents over 10 weeks from August 11 when the U.S. average price reached its all-time record high of $3.0256, reported the most recent Lundberg Survey of approximately 7,000 U.S. gas stations.
But the latest drop of eight cents is different. The first six weeks of price crash came from the gasoline supply overhang and [image-nocss] accompanying weak gasoline demand due to high prices, as well as lower oil prices. The latest two weeks of drops is nearly entirely due to lower crude oil prices. (Close to 2 cents of the 8 cents was from lower retail gasoline margins, which on October 20 is back down to single-digit for regular grade.)
The gasoline glut has been soaked up. And so too has much of OPEC's credibility, since on the day it formally announced a big production cut, futures traders put the closing price of near-month WTI down $1.68 bbl. to $56.82. The past two weeks of chatter from OPEC types did nothing to stem oil's decline, so the organization increased the cut by 200,000 b/d to 1.2-mmb/d; made the cut from actual production instead of from official quota; and made sure the Saudis, who are the only ones with significant production capacity cushion, were high profile in agreement with the cut.
More than ever, OPEC's membership is made up of countries with a wide array of industry advantages and disadvantages, and they have differences sufficient to result in OPEC producing the amount it says it will, or less, or moredepending on the individual sovereign nations' circumstances. OPEC had long over-produced (beckoned by high oil prices), but lately half the members under-produced (not by choice but due to internal problems). OPEC cohesion from a quota allocation system it has now abandoned thus cannot be assumed.
Meanwhile, the world oil market is currently flush, favoring price weakness, while world seasonal oil demand for the heating oil season is rising, favoring price strength. Demand, weather and OPEC resolve will decide the oil price. If that is stable, then gasoline prices should be as well.
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