CAMARILLO, Calif. — Between Jan. 11 and May 3, the U.S. average retail price of regular-grade gasoline zoomed up 65.6 cents per gallon (CPG), according to the most recent Lundberg Survey of U.S. fuel markets. Some two-thirds of the increase was during just four weeks, March 22 to April 19.
The current average pump price is $2.9662, up 5.44 cents from two weeks ago—a crawl, compared with the prior jerks upward. This far smaller retail price rise reflects four main things: crude oil, Reid vapor pressure (RVP) regulations, refiners' work projects and downstreamers' gasoline margins.
Crude oil prices slipped some since April 19, close to a nickel-per-gallon equivalent, reflecting both West Texas Intermediate (WTI) and Brent grades. So where is that nickel, since gasoline prices rose by that amount in the same period?
Broadly, it resides within downstream margins.
For refiners, the final deadline for the seasonal RVP reductions for spring/summer blends was May 1. And for refiners, who annually conduct repairs and maintenance pre-summer to avoid curtailment of output during the biggest demand months, the portions of capacity idled are a loss of sales, so as margin times volume is profit, margin protection during repair season is a must.
For retailers, after struggling under narrow gasoline margin averaging just 10-13 CPG between early March and early April, and then a better but still unlovely 15.67 cents on April 19, another improvement was timely. They got it—an increase of 4.59 cents. Retail margin is now 20.26 CPG on regular grade, double its early March width but not hefty either. This is the first time retail margin peeked above 20 cents since last January.
The retail gasoline price climb lasting 16 weeks seems to have lost most of its steam. Although crude oil is the biggest factor in the 2019 gasoline price climb, the dramatic March-April price pull was a one-two hit combo of seasonal regulations with seasonal downtime for capacity—which, although a combo that hits each and every year, was tougher than usual due to unplanned refinery repairs added to the planned work. The seasonally required blends are now a fait accompli, but the capacity shutdowns are not.
Assuming no important oil price hike, if this month sees a significant part of idled refining capacity come back up, then gasoline prices are likely to quickly peak and recede. Refiner margin on gasoline is no longer grim, and in fact during this past week, refiners cut rack prices—by about 4 to 5 cents in the East, 2 to 3 cents in the Midwest, 3 cents in the Gulf, and 2 to 4 cents in the West, including a deeper price slide for the branded rack channel in California.
Camarillo, Calif.-based Lundberg Survey Inc. is an independent market research company specializing in the U.S. petroleum marketing and related industries.
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