Is a Turnaround Afoot?

Pump price down again on oil price, gasoline supply
Photograph: Shutterstock

CAMARILLO, Calif. — During the two-week period of Jan. 10-24, 2020, the U.S. average retail regular-grade price dropped 4.03 cents per gallon (CPG), due mostly to two fat factors: low oil prices and high gasoline supply. During the two weeks from Jan. 24 to Feb. 7, that price dropped 7.43 cents more. It is now $2.5301, according to the most recent Lundberg Survey of U.S. fuel markets. This latest drop is due to those same two factors.

The near-month futures price of West Texas Intermediate (WTI) fell the equivalent of 9.5 CPG, and Brent fell even more.

And the gasoline glut condition persists, although in the latest week there was, after three months of rises on a weekly basis, a very small drop in primary stocks.

U.S. refiners, that a wit recently described as “binge-producing” gasoline, finally cried "uncle" loud enough to be heard after they long suffered too-narrow gasoline margins, their surrender manifesting in the form of a drop in total refining capacity utilization of 3.1 percentage points to 87.4%. The prior cut in the capacity use rate had been smaller than this.

Upstream, some producers want to cut back too, but collectively, led by the Organization of the Petroleum Exporting Countries (OPEC). OPEC and others, plus many analysts, had fretted over weakening world oil demand for quite some time, and now the coronavirus had added a new demand-denting element. A guiding committee inside OPEC wants the members and country collaborators to deprive the world market of about 600,000 barrels per day, but key collaborating country Russia has, at this writing, not agreed. Russia seems to expects less severe global weakening of demand, despite the virus scare, and expects U.S. oil production growth to be less spectacular than it was in 2019.

On the retail side, gasoline margin did edge up an undramatic 1.16 CPG to 28.05 on regular. But it was better than nothing. Total margin improvement during the past seven weeks: 6.37 CPG.

The U.S. gasoline market remains oversupplied. If oil prices do not strengthen significantly, pump prices may well drop further, if modestly, from here. And the upcoming rollout of higher-cost, lower vapor-pressure spring and summer formulations will not even be due at retail until April 1 in just one limited part of the country, and two months later for most areas. Again, assuming no oil price surge, with weak gasoline demand and heavy-handed supply, no pump price spike is imminent.

Meanwhile, tough times in Albuquerque, N.M., where over the past month regular-grade gasoline margin has gone from 21.37 cents to a spare 14.57 cents to the current measly 10.51 cents. Since Jan. 24, the weighted wholesale price in this market has dropped 7.24 cents, while the average retail price has fallen 11.3 cents. Eleven cents in today's business conditions is unsustainable.

Click here for previous Lundberg Survey reports in CSP Daily News.

Trilby Lundberg is publisher of the Lundberg Survey of U.S. fuel markets.


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