Downstream Deflated

Refiners, retailers shielded motorists from oil hike, says Lundberg

Published in CSP Daily News

CAMARILLO, Calif. -- Brent and West Texas Intermediate oil prices climbed in the past two weeks--Brent about $6 per barrel, WTI nearly $5--on concern that the crisis in Iraq may curtail oil output. But the U.S. average pump price for regular-grade gasoline rose just 1.87 cents per gallon to $3.7098 during the period, according to the most recent Lundberg Survey of approximately 2,500 U.S. gas stations.

Refiners and retailers both lost gasoline margin and are under pressure to recover soon. They absorbed most of the crude oil hit, so that motorists continue to experience unusually low price volatility on average. The U.S. pump price has been plateaued for nine weeks. In fact, the current price is 1.27 cents below its May 2 average seven weeks ago.

The crude oil response to Iraq was muted in light of the OPEC nation's vital importance to world oil supply, and in light of already existing oil market jitters emanating from other hot spots including Russia/Ukraine, Libya and Nigeria. If a physical threat to Iraqi output seems near, oil prices will shoot up further and pull wholesale and retail gasoline prices up with them.

The U.S. gasoline market is comparatively mellow: Stocks are up, instead of down as usual for the season, and the overall refining use rate is remarkably good. Gasoline demand is still growing, and supply is more than enough to keep up.

Over the two weeks, U.S. unbranded rack climbed 8.1 cents per gallon on average, but in the past one week, it was stagnant. Since Friday June 13, Gulf Coast branded rack increased 3.53 cents per gallon on average, while PADD 2 branded rack actually dropped 6.13 cents per gallon.

Retail margin pressure is on: Down 4.38 cents per gallon since June 6, margin on regular is just 10.46 cents on average, its lowest in 11 weeks.

Camarillo, Calif.-based Lundberg Survey Inc. is an independent market research company specializing in the U.S. petroleum marketing and related industries.

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