CAMARILLO, Calif. — The national average retail price of regular-grade gasoline is now $2.5322, up 2 cents since Feb. 7, according to the most recent Lundberg Survey of U.S. fuel markets. This statistical no-change comes at a time when both U.S. gasoline demand and global crude oil demand are at crossroads.
U.S. supply of gasoline remains super-abundant, even glutted. The country is nearing its starting point for the climb out of the low-demand season, which happens to also usher in slightly higher refining costs for gasoline for compliance with lower-vapor-pressure regulations. In just under two weeks, gasoline demand's seasonal climb will get a bit of a jump start from the onset of daylight saving time, making consumption more welcome for motorists. For now, though, gasoline supply outweighs demand, despite a fresh spate of unplanned refinery repair projects adding to the still-idled capacities that have not yet returned after annual maintenance.
It is crude oil demand that is the giant wild card. This is because demand affects price, now more obviously than usual, and typically crude oil accounts for more than half the gasoline price pie. Oil demand is either ailing or in profound crisis. The Organization of the Petroleum Exporting Countries (OPEC) and its collaborating nonmember nations is unclear as to how impactful the coronavirus is, and soon will be, to world oil demand. And neither the organization nor breakaway groups within OPEC have concluded what amount of oil production cut is advisable for protecting oil prices. For now, that is status quo. The mixed view of what the virus will do to oil prices is common to the rest of the world, including all oil producers, demand analysts, bankers and economic planners.
U.S. gasoline demand is on its seasonal threshold to rise up, supporting gasoline prices. But crude oil demand is on a critical threshold of its own, threatened by the coronavirus spreading within and outside China.
An oil price crash responding to a demand crash would easily arrest any U.S. retail gasoline price rise. Nevertheless, a near-term retail price rise is a possibility because oil prices did strengthen in the past two weeks, refiners passed them through into wholesale gasoline, and nationally the retail margin on regular grade, after improving by 6.37 cents per gallon (CPG) during seven weeks ending Feb. 7, has now been punctured, losing nearly twice that amount. Margin on Feb. 21: just 15.74 CPG. Regardless of crude oil's price moves in the near future, many retailers will have a hard time pursuing margin recovery.
Houston, with one of the ugliest retail gasoline market predicaments on Feb. 21, has a momentarily negative margin of 1.72 CPG.
Margin had already been floating in very narrow territory for weeks. And now with wholesale prices up nearly 19 cents (all buying channels weighted), but the average retail price up less than a penny and a half, margin was slashed by 17.33 cents.
Click here for previous Lundberg Survey reports in CSP Daily News.
Trilby Lundberg is publisher of the Lundberg Survey of U.S. fuel markets.