Retailers Give Motorists a Big Price Break

Lundberg asks,will the Saudis give them more?

CAMARILLO, Calif. -- Retailers' lost gasoline margin over the past three weeks happens to be nearly exactly the amount of the retail price decline. They handed it to their cash-strapped customers.

The June 10 U.S. average price of regular grade gasoline at retail pumps was $3.74.05, according to the most recent Lundberg Survey of approximately 2,500 U.S. gas stations. It was down 16.69 cents over the past three weeks, and a total of 25.93 cents over five weeks.

Simply put, the price peaked at $4 on May 6, [image-nocss] just 11 cents shy of the highest price in history ($4.11 on July 11, 2008), then crashed 26 cents.

The main cause was lower crude oil prices, passed through from refiners to retailers who passed them through to motorists. But also, underemployment and motorists' response to the extreme price hikes of March and April have put the U.S. gasoline market in glut condition. Gasoline stocks are swollen and refiners have upped the use rate of their capacity.

On April 22, the U.S. average retail margin on regular was a narrow 9 cents gal. Two weeks later it swelled to 25 cents gal., then on May 20 to an even wider 32 cents. Now the dam has broke for retailers, as it had already been doing for refiners: Margin on June 10 is a more normalized 17 cents on average. It shrank by nearly 16 cents in the past three weeks. So the big retail price cut since May 20 is thanks to gasoline retailers delivering their wholesale price cuts right over to motorists.

The retail price slide is a sizable improvement for consumers; however, the current price sits $1.03 above what it was a year ago, a painful difference during still-tough economic times.

Flush gasoline supply and weak demand suggest, assuming oil stays around the $100-per-barrel level instead of surging again, that retail prices will drift lower from here, maybe another 5 to 10 cents.

If the rumor of Saudi Arabia's July oil output increase proves true, then American consumers may see far more than a dime drop at the pump.

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