CAMARILLO, Calif. -- In the past two weeks, retail regular grade moved up another 11.43 cents per gallon to $3.1827. It breaks another record, but this time it also breaks the all-time high inflation-adjusted record price of March 1981 by three cents, according to the most recent Lundberg Survey of approximately 7,000 U.S. gas stations. Back then, regular unleaded gasoline cost $1.35 but in today's dollars that was $3.15.
That said, the gasoline market seems to be calming down at last. Supply [image-nocss] is showing signs of normalization, and demand growth seems to be abating. Prices may now have peaked at last (they dropped in most California cities and on a spotty basis elsewhere in the past two weeks)after a 99.81-cent rise in the U.S. average price so far this yearand can drift down. Drift, but probably not crash because of crude oil and retailer margin.
Retail gasoline prices will drift down if crude oil prices let them (crude is up about $3 per barrel of late, $65 for the U.S. benchmark futures price, a price that has been depressed due to refiner-customer problems). OPEC's high-price mentality, Nigeria's violence to the oil sector, Venezuela's production problems and Iran's political risk have not abated.
Retail gasoline prices are also more likely to drift than crash because in many markets, retail margins are very poor and will be exerting upward price pressure. In many cities, they are temporarily in the red during the lag time between wholesale and retail price hikes. So far this year, the U.S. average retail margin on regular is below a dime, but on May 18 it didn't even eke out four cents. At a time when retailers will be increasingly pressed to explainagaintheir ABCs to hot-headed politicians putting them on the hot seat, it is ironic that, far from price gouging, they are in dire needed of raising price to recover margin.
In the latest two weeks, still more U.S. refining problems have occurred, after an extraordinary number of problems by any year's standard, delaying the retail price peak. By our documentation, so far this year there have been about 35 non-routine events that crimped U.S. gasoline supply by as much as 8%. But capacity come-backs and more imported gallons of gasoline are augmenting supply. Demand growth is blinking, but not running. This is a prescription for moderate price retreat in the near future.
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