CAMARILLO, Calif. -- The U.S. average regular grade retail price edged up 4.92 cents per gallon in the past two weeks, to $2.7993. If crude oil prices do not retreat fast and furious, that nickel hike will now be followed by more increases, according to the most recent Lundberg Survey of approximately 7,000 U.S. gas stations.
The Organization of Petroleum Exporting Countries' (OPEC's) announced production increase of half a million barrels per day starting November 1 is not itself likely to [image-nocss] puncture oil prices. And world oil demand does not seem poised to cause an oil price crash. If oil merely hovers in the $85-to-$90-per-barrel area, even if an added stage in the surge doesn't happen, there is powerful price pressure on retail gasoline.
This is because the entire gasoline side of the oil businessincluding refiners, marketers and retailershas suffered margin deterioration. Margin is an unsung price factor because few participants want to trumpet their gains and losses, but analysis of the gasoline market is incoherent without recognition of the importance of margin.
The nickel hike on the street in the past two weeks is only about one-quarter of what crude did in the same period. Since the May 18 all-time record high retail price, refining margins are only about a sixth of what they were, and retail margins are about one third of their former selves. These much lower margins alone are enough to dictate what retail prices do next. The urgent upside pressure on downstreamers currently implies perhaps 10 to 20 cents more on the street.
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