CAMARILLO, Calif. -- Regular costs $1.86 per gallon on the streets of Detroit, and sits under $2 per gallon in six other large markets surveyed on January 19, according to the most recent Lundberg Survey of approximately 7,000 U.S. gas stations.
But this doesn't mean that the nation as a whole will lose as much as 18 cents more. The recent price cutting might prove to be the bulk of the drop handed to consumers by the Organization of Petroleum Exporting Countries (OPEC) and a mild winter season.[image-nocss]
The U.S. average retail regular grade gasoline price fell 14 cents per gallon on average in the past two weeks, to $2.18. This obliterated the 14-cents-per-gallon rise of the prior nine weeks. The current average price sits 14 cents per gallon under that of one year ago.
Retail gasoline's plunge greatly exceeded crude oil's price drop of 10-cents-per-gallon equivalent during the same two-week period.
The amount by which retail gasoline outdid crude in this crash period is largely from a drop in the refinery margin on gasoline being passed through to marketers and retailers, with some contribution coming from lower ethanol prices.
Unfortunately, losses in refiners' gasoline margins and in ethanol prices are missed by some market observers who lately repeat, heatedly but erroneously, the myth that gasoline price moves always lag crude on the way down, and/or lead on the way up.
A combination of factors might combine to end the retail gasoline price cutting near term: If OPEC's determination to save face and revenues by adhering to its November 1 production strengthens and exerts some or all of its additional February cut, and January's U.S. gasoline consumption growth continues into February where it is joined by the seasonal rise, we may very soon see an end to the street price decline; however, enough individual OPEC members are on the hot seat to maximize output, so world oil supply will probably outweigh demand; February gasoline demand won't likely strain our refining capacity despite turnarounds; and retailers under competitive pressure may have to forfeit some of their currently plump regular grade margin of 18 cents per gallon.
On balance, some further retail price decline can be expected.
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