'What Did Crude Say to Gasoline'? Gasoline prices fall despite oil price surge; it can't last, says Lundberg
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CAMARILLO, Calif. -- Retail gasoline prices are down 3.29 cents per gallon on average in the past two weeks, to $2.6321, giving the raspberry to rising crude oil prices, according to the most recent Lundberg Survey of approximately 5,000 U.S. gas stations. How can retail be down by about 3 cents while crude is up a per-gallon equivalent of nearly 21 cents?
That apparent 24-cent divergence is partly from the lag time between the futures paper price of the raw material and the wet price at the pump, as much of the hike hit during the past few days, and partly from gasoline demand's price resistance. Demand is so poor that refiners, already having shut in a fifth of capacity, some of it permanent, suffered a 14-cents-per-gallon margin loss while gasoline retailers gave up more than 9 cents of their margin.
On February 19, refiners got less than 22 cents per gallon on gasoline; retailers got barely more than 6 cents. Each of the two downstream sectors failed to pass along what crude oil prices did. Each will now be forced to pass more of their cost hikes through, resulting in higher retail gasoline prices, unless crude suddenly fell deeply.
Imagine the conversation:
Crude says to Gasoline: "Jump. Investors parking money here has made me much more valuable."
Gasoline: "No way. Unemployment and the overall poor economy has hurt demand for me. Go fly a kite."
Crude: "Way. Artificial or not, my price will come to the street. If I can hold close to $80 barrel, investors and producers will party."
Gasoline: "Refiners, jobbers, retailers and motorists aren't invited. The current retail price is nearly 69 cents above a year ago. I'll go up with you if you stay near $80, but at great cost to everybody downstream."
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On February 19, refiners got less than 22 cents per gallon on gasoline; retailers got barely more than 6 cents. Each of the two downstream sectors failed to pass along what crude oil prices did. Each will now be forced to pass more of their cost hikes through, resulting in higher retail gasoline prices, unless crude suddenly fell deeply.