Shift in Global Perception of Oil Supply

Retail price plunge and retail margin climb continue
Photograph: Shutterstock

CAMARILLO, Calif. -- The world view of crude-oil supply shifted dramatically in recent days, working to slash oil prices.

The fact of the U.S. decision to grant temporary waivers for several of the biggest national buyers of Iranian oil, just when oil sanctions are going into effect, corrected the earlier view that supply would be seriously tightened. Additionally, U.S. oil production--especially shale oil--has been revised up.

Prices of West Texas Intermediate and Brent have plummeted, feeding price cuts into the U.S. downstream system. Unbranded rack has plunged 15 cents per gallon (CPG) since Oct. 19, with branded rack close behind; since Halloween alone, branded has fallen 6 cents. Retailers shared the wealth: After a drop of 4.69 CPG in the U.S. average retail price of regular-grade gasoline during Oct. 5-19, we had a drop of 7.68 cents Oct. 19-Nov. 2, according to the most recent Lundberg Survey of U.S. fuel markets.

In the past month, the national average price at the pump has come down nearly 13 CPG. This is an encouragement to gasoline demand growth, as is the now far-smaller price penalty over the year-ago point, just 27 cents, along with the more favorable U.S. economy including the higher labor participation rate, jobs increase and wage growth. Unfortunately, there remains a long way to go to liberate gasoline demand growth to a good rate, and the Nov. 3 end of Daylight Saving Time is no help.

As stated in this column, when refiners achieve some gasoline margin relief, it may seem to come at the expense of retailers, who at the moment are sitting on their highest average margin in months, and may end up giving up some of their recent gain. Now in Nov. 2 data, with refiners having regained less than two pitiful pennies per gallon of gasoline margin since Oct. 19 while retailers advanced their regular-grade margin by another 6.29 cents, it should not surprise if shrinkage in retail margin and expansion in refiner margin occur together, and soon.

Regular-grade retail margin gain took place in all regions during the past two weeks. The national average Nov. 2 was an eye-popping 34.41 CPG, up a marvelous 16.7 cents during the past six weeks. The average pump price may well slide a few more pennies, though, because oil price drops have not fully made their way to the street and there is room for refiners to maybe regain a few while retailers maybe forfeit a few.

Camarillo, Calif.-based Lundberg Survey Inc. is an independent market research company specializing in the U.S. petroleum marketing and related industries. Click here for previous Lundberg Survey reports in CSP Daily News.


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