CAMARILLO, Calif. -- For the first time since February, U.S. average gasoline prices slipped in the past two weeks. Self-serve regular now averages $2.9328, down 1.45 cents since May 5. What allowed for the price to peak two weeks ago was an improved gasoline supply picture, and some slippage in crude oil prices, according to the most recent Lundberg Survey of approximately 7,000 U.S. gas stations.
The current price is nearly 13 cents under the inflation-adjusted all-time record price of 1981 and [image-nocss] eight cents under the hurricane-driven price of Sept. 9, 2005. In February, the average retail price dropped about nine cents, then raced up nearly 71 cents as seasonal demand build up coincided with idled capacity and extreme circumstances dictated by federal energy bill and Environmental Protection Agency (EPA) particulars.
The drop of one-and-a-half cents since May 5 comes mostly from greater supply. Gasoline supply was favored by a higher rate of refining capacity use as several work products were completed and hurricane-damaged capacity returned, and by strong imports, and by a lack of gasoline demand growth.
Short term, retail gasoline prices appear poised to keep dropping. The possibilities of crude oil price hikes, refining problems, scarce imports and even a return to gasoline demand growth exist; however, the possibilities of higher refining capacity utilization and gasoline import levels, against a backdrop of sluggish demand, are stronger.
If world crude supplies don't suffer another actual loss such as has occurred in Nigeria or perceived threats from petropolitics elsewhere, then a few more cents' drop at retail can be expected even as the high consumption period begins two weeks from now.
Another reason there is room for retail price downward movement is the currently flush margins for refiners, marketers and retailers in much of the country. Although the overall regular grade U.S. retail gasoline margin to date this year is more like that of 2004 than the higher 2005, it is currently above 2005's average margin. For cities surveyed, retail margins sit in these approximate quartiles: below a dime; below 15 cents; below 20 cents; and above 20 cents. As special costs related to this year's changes to gasoline specs are rationalized, and as retail pricing chases lackluster demand, some downward pressure on retail margins can be expected.
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