CAMARILLO, Calif. – Regular-grade retail gasoline averages $3.6967 nationally, down 15.05 cents from August 8, an even deeper decline than that of the prior two week period, according to the most recentLundberg Survey of approximately 7,000 U.S. gas stations. But unlike the late July-early August drop, it comes not from crude oil, but from poor gasoline demand and lower industry margins.
The August 22 closing price for light, sweet crude on the NYMEX was within one-cent-per-gallon equivalent of its August 8 price. It bounced $12 [image-nocss] per barrel last Thursday and Friday, up about $6 and down about $6 in a 48-hour period, the extreme volatility coming from reversals in U.S. dollar exchange rates and reversals also from the perception of oil supply risk in Georgia, where a key pipeline had been down. With speculation about Russia's intentions in the region ramping up, a newly appreciated wild card in the deck of oil price determinants is present.
The recent 15-cent decline at the pump comes from gasoline margin losses for refiners and to a lesser degree from retail margin shrinkage, as well as from consumer backlash against price.
If crude oil prices don't trend back up, then further, but smaller, retail gasoline price drops are likely. Weaker U.S. gasoline demand persists, despite a total retail price drop of nearly 42 cents since the all-time peak price six weeks ago, and demand will drop anyway after August following its seasonal curve.
As usual, margins are about as volatile as prices. But for the first eight months of 2008, refiner margin on regular grade gasoline is the lowest in a decade, while retailer margin is the highest in a decade. Retail margin so far this year sits about a penny above its calendar 2007 level, while refiner gasoline margin so far this year remains less than half that of 2007. Until refiner margin improves, the use of U.S. refining capacity for gasoline output will be depressed, and imported gasoline will be disincentivized to gush into the American market.
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