The Oct. 8 announcement that phase one of the peace agreement between Israel and Hamas was accepted by both parties, at least for now, had an immediate effect on crude oil prices.
The event allowed a big piece of the war premium built into crude oil to pop out: The near month futures price of West Texas Intermediate dropped $3.65 bbl. by Oct.10. It is the equivalent of 8.7 cents gal.
The agreement added impetus to the oil price erosion already taking place, which allowed greater wholesale gasoline price cutting that many retailers are already passing through into street prices.
There is another reason for the pump price drop, which is flailing U.S. gasoline demand. Demand is on a down slope both seasonally and year-on-year. The economy's impact may be now posed for a further reduction in the work commute and news indicate the government shutdown may bring layoffs among federal workers.
Margins in the downstream of the U.S. petroleum industry are looking strong. Refiner margins on gasoline slipped, but they are not skinny. In the case of retailers’ margins, they are downright rosy: A gain in the past two weeks of 2.9 cents puts it at 44.0 cents, such a nice turnaround from the skinny days of mid-May, for example, when the average was a painful 21 cents. If gasoline demand continued to disappoint short-term, then both sectors of the downstream may conceivably cut into their take, thereby allowing greater retail price cutting than otherwise would be.
Another help to motorists currently in place is a nickel (5.1 cents) discount to the price last year at this time.
Lundberg's daily wholesale price surveys of the nation reveal an average 10.96 cents gal. drop in the branded rack channel and nearly that big for unbranded. The Midwest had the biggie, a crash of nearly 19 cents (18.64 cents) for branded regular gasoline in the past two weeks. Even PADD 5 had a drop, some 10.79 cents for unbranded rack. The slippage included latest days following the fire at Chevron's El Segundo refinery that knocked out several units. Efforts to bring transportation fuels output back up to normal are ongoing, and price impact on customers was minimal.
As for gasoline price's dominant force, the price of crude oil, the major chunk of war premium remains because efforts to end the Russia-Ukraine ware remain stymied.
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