CAMARILLO, Calif. -- In the past two weeks, the average regular grade retail gasoline price is up 24.54 cents per gallon, to $2.9104. That is a total of about a 78-cent rise since it bottomed out on December 2. Much of the cause has been higher crude oil prices, and much has been the higher costs of providing gasoline with the U.S. Environmental Protection Agency (EPA) and federal energy bill 2005 requirements.
But this time, it's nearly all due to crude, according to the most recent Lundberg Survey of approximately 7,000 U.S. gas stations. The raw material has raw nerves from real and feared oil supply (Nigeria's loss, and concern about future supply from other producing countries. mostly Iran), pushing up NYMEX WTI by nearly $8 per barrel during the same two weeks.
The rest of the pump price surge is due to the combined effects of energy bill and EPA requirements, mostly the mandated sales of ethanol, which costs refiners more than the methyl tertiary butyl ether (MTBE) it is replacing in terms not only of purchasing the product but blending it with lower sulfur caps and delivering it separately. This is the direct cause of current spotty outages at stations, waiting for their suppliers to bring in gasoline with the corn-based additive.
Retail margin has recovered its prior shrinkage, and refining margins appear stable. The latter have a new, higher norm due to added ethanol and other required changes to specs. Year-to-date, retail and refiner margins are below their extra-high 2005 levels, but similar to 2004.
Although there are five states and D.C. that have $3-plus retail prices, the U.S. average has a dime to go to meet its nominal all-time high of last Septemberand 15 cents to go before matching the inflation-adjusted high of March 1981. Crude oil prices have exceeded their all time high after last year's hurricanes, but not their inflation adjusted high. They are still about $17 per barrel below their true record high back in 1981.
In coming weeks, or even days, gasoline prices will probably peak and declineif crude oil prices don't rise yet again. Gasoline supply soon will be augmented by refining capacity coming back from extra-heavy pre-summer maintenance and from last year's hurricane damage. But gasoline supply probably cannot be flush: Demand has been flat for the past month, but so far hasn't declined despite the high prices. And gasoline imports, possibly scarce due to the higher hurdle of this year's U.S. specifications, might be additionally thin near-term because of non-U.S. refiners' production problems of their own (Venezuela, Japan), tightening world output.
The ethanol market itself might be headed for a shake-up. One of the only measures that would address some of gasoline's dramatic cost increases would be to remove the de facto barrier to Brazilian ethanol, a huge import tariff of 54 cents per gallon, to alleviate U.S. supply tightness of the now-mandated additive. Other measures (building new refineries, slashing fuel taxes) face far more serious political hurdles. For now, gasoline marketers will be lucky to hang on to their volume and margin.
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