Will Refiners Transfer Margin to Retailers?

Pump prices are up, but the impetus is waning

CAMARILLO, Calif. -- The U.S. average retail price of regular-grade gasoline increased another 5.69 cents in the past two weeks, and now sits at $3.2722 per gallon. This is just 60 cents above its bottom point on Feb. 19, according to the most recent Lundberg Survey of approximately 2,500 U.S. gas stations.

getting gasoline

For the past 15 weeks, higher crude-oil prices were the main cause of gasoline’s climb. Lesser contributors included strong gasoline-demand growth and the pass-through of seasonally higher costs from making the required low Reid vapor pressure (RVP) product. The final deadline for retail fuel sites in most of the country to have low-RVP gasoline available was June 1, so RVP as a price pusher is completely spent.

Demand growth remains robust. As for crude, it now appears somewhat comfortable in a zone it lived in for about a year ending November 2015, before it swooned, and may linger where it is.

In our last column, we said that pressure on retailers to adjust prices upward abounds, because margin is skimpy. It is still skimpy, having recovered less than half a cent during the last two weeks to a lackluster U.S. average of 13.52 cents per gallon. Two vignettes:

  • At the moment, margin in Charleston, S.C., is a mere 6 cents, after having preened with nearly 20 cents in early May. Since May 20, the weighted wholesale price of regular grade in that market rose more than a nickel, and margin dropped by nearly that amount because on average the hike was not passed through to consumers. So the average Charleston street price is virtually unchanged.
  • In Houston, wholesale and retail each rose by more than 8 cents, but retailers are still treading in a roiling sea of poor margin, or just 2.8 cents per gallon (CPG) on June 3. This is after a slightly better margin of merely 3 cents on May 20. In these and several other markets, retailer margin needs a break very soon.

But meanwhile, refiner margin on gasoline improved again and appears comparatively high. If refiners on average give up some of their margin gain while retailers regain some of theirs, it may look like a “wash.”

News out of the OPEC meeting last week was not a price-pulling event. The slight buoying of crude, worth about a 2-CPG equivalent vs. futures prices two weeks ago, came more from a June 3 decline in the value of the U.S. dollar. Unless oil prices strengthen substantially from here, retail gasoline prices may well stop rising because most of the upward push on street prices has ceased for now. Further pump price gains appear unlikely near term.

A crash on the street is not likely near term either thanks to favorable demand conditions, including the 49-CPG discount that the current price is to its year-ago point.

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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