Transfer of (a Little) Wealth

Refiners hand retailers 2 cents per gallon

CAMARILLO, Calif. -- The U.S. average retail price of regular-grade gasoline rose 0.27 cents per gallon (CPG) in the past two weeks, to $2.9079, according to the most recent Lundberg Survey of U.S. fuel markets. It certainly looks like a no-change. Not so, above the street: The average wholesale gasoline price dropped 1.69 cents, and the average retail margin expanded by 1.95 cents. Refiners cut their selling prices, clipping their own gasoline margins on average, while retailers padded theirs a little, on average. It looks like a margin wealth transfer, although a small one.

For U.S. refiners, light-grade crude prices did not alter much overall since Aug. 24: West Texas Intermediate (WTI) declined some while Brent rose. In general, oil prices did not exit their typical 2018 territory. And by mid-month, U.S. refiners will get a cost break as the summer-blend gasoline specs requirement is phased out for the year. That cost break of perhaps a couple of pennies may translate to a price break for marketers and retailers, materializing in late September. Of course, if crude-oil prices strengthen significantly in the interim, the end-of-summer gasoline will not be visible in gasoline prices to the naked eye. Or, if oil prices go down, a resulting gasoline price decline would be greater than the mere shift to higher allowable vapor pressure would allow.

At the same time, gasoline supply abundance and high refining capacity usage continue, as does weak to nonexistent gasoline demand growth.

Bearing in mind the important differences in costs of doing business around the nation, and the perishable pictures of date-specific retail margins, nevertheless on Sept. 7 the spread from lowest margin (Albuquerque, N.M.) to highest (Seattle): a gaping 37.73 CPG.

During the past week, racks have been on the drop, especially in PADDs 2 and 3. The average Midwest branded rack for regular grade fell 6.16 CPG to $2.0202. Branded rack fell a bit more than that in the Gulf region, where unbranded declined to an average $1.9698 on Sept. 7.

Modest to moderate downward adjustments in pump prices seem likely as September unfolds. Neither refiners nor retailers are rolling in high gasoline margin; nor are they squeezed in acute deprivation. There is a little but not much room for downstream margins to weather whatever the world crude-oil market does next.

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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