Lundberg in

CSP, May 22, 2023:
Recipe for a Price Hike
Gasoline supply and demand are colliding

CSP, May 8, 2023:
Crude Oil and Gasoline Price Cutting
Retailers gain both margin and demand

CSP, April 24, 2023:
Pump Price Hikes Slow, Retail Margin Rebounds
Oil price back in the (calmer) zone

CSP, April 10, 2023:
Gasoline Springing Into Action
OPEC+ hits price, U.S. downstreamers lose margin

CSP, March 24, 2023:
Stability in Oil and Gasoline, For Now
Pump price sheds a penny

CSP, March 13, 2023:
Price Up 2 Cents, Margin Down 2 Cents
Gasoline, like crude, corralled by 2-handed economists

CSP, May 22, 2023:
Recipe for a Price Hike
Gasoline supply and demand are colliding

Pump prices dropped again but appear poised to stop dropping and commence rising. It could be by a modest amount, or it could be jaw-dropping.

During the past two weeks, the U.S. average retail price of regular grade gasoline fell 3.55 cents per gallon (CPG) to $3.6367, according to the most recent Lundberg Survey of U.S. fuel markets. During the prior two weeks, the decline was 8.15 cents, so the rate of decline has been halved.

The creators of the retail price are mostly crude oil, always the dominant factor, and gasoline's own market dynamics.

Crude oil prices have been remaining notably stable, allowing a convenient view of what is going on with gasoline. West Texas intermediate's near-month futures prices have moved within a narrow $10 per barrel range most of the time for the past seven months. In fact, during the past two weeks, they have moved within a mere $3.67-per-barrel band between highest price date and lowest price date, settling at $71.55 per barrel on May 15.

Between May 5 and May 19, the tiny WTI price increase of $0.021 per barrel amounts to a microscopic $0.005 CPG. Of late, compared with so many other periods in oil price history, the price of the raw resource has been a virtual non-issue in retail gasoline price changes.

But the U.S. gasoline market is another matter: Supplies have been seriously shrinking and are currently at an extreme low. At the same time, demand has been roaring, at least in terms of post-2019 reality.

During the first four months of this year, we have growth of 2.4% and preliminary May data show growth continuing. One reason for this is the huge price discount between the current price and its year-ago level: $1.08 per gallon. And while jobs growth may be arguable, jobs data reveal heavy reliance on part-time work, an aid to consumers facing still-high inflation. The work commute is fundamental to gasoline demand, and one or more part-time jobs multiply required driving for motorists.

Refiners, having completed much heavy maintenance and repairs to capacity, have upped the aggregate use rate to 92% and this can be expected to rise even higher soon. June begins the summer driving season and is often the highest gasoline consumption month of all.

Refiner margins on gasoline are flush to say the least. Rack prices are zooming.

Retail margins took an awful beating in these two weeks, because big rack hikes have not been passed through. While the average retail price was still slipping, the average wholesale price jumped more than 18 CPG. Result: Average retail margin crashed by nearly 22 CPG, to 27.22 cents on May 19. There are some perilously thin margins around the country, and pressure to raise street prices is great.

In St. Louis, the weighted wholesale price of regular grade leaped 22.83 CPG in the past two weeks while the average retail price was still edging down 2.24 cents. With retail margin being slashed by an extreme 25.07 cents on average, this left St. Louis retailers on May 19 with an average delta in the black by a nominal 0.59 CPG.

Current conditions suggest that retail gasoline prices will rise from here, perhaps 10-15 CPG. But if OPEC+ finds low oil prices and oil's narrow price band alarming at its upcoming June 4 meeting elects to cut production again, which per speculation is an ongoing argument among some participants, then early summer pump prices could well spike instead of just hike.

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

Trilby Lundberg is publisher of the
Lundberg Survey of U.S. fuel markets. Lundberg Survey Inc. is based in Camarillo, California.

Tel:(805)383-2400  Fax:(805)383-2424