Downstream Recovery

Published in CSP Daily News

Margin hikes hike pump price, says Lundberg

CAMARILLO, Calif. -- The Jan. 10 average retail gasoline price is up 8.41 cents from three weeks ago, to $3.3459 per gallon on regular, according to the most recent Lundberg Survey of approximately 2,500 U.S. gas stations.

It wasn't crude oil that did it in this case. Lately, crude oil and retail gasoline moved in opposite directions.

Crude, two key benchmark prices averaged, dropped about a dime per gallon equivalent, especially in the past few days. But it didn't show up on the street nationally, because downstream gasoline margins--in refining and retailing--had been acutely narrow, and had to recover a more normal width sometime soon. Now they have.

It is imperative for the downstream to garner a healthy gasoline margin, at least on average, else consumers can't be supplied. Over time, many of the costs built into doing business have been rising, not falling, and this certainly applies to U.S. retailers and refiners. Gasoline margin has to be wide enough to cover all those plus a bit of profit for the system to work.

This upward correction does not put downstream margins in very flush territory, just healthier territory. The current retail gasoline margin happens to be about the same as it as during full-year 2013; the current refiner gasoline margin is about a nickel per gallon shy of its 2013 average. For retailers, the win during these three weeks was a reversal of the five cents per gallon they incurred between Dec. 6 and Dec. 20. For refiners, these three weeks delivered some normalcy after five months of depression.

From here, with gasoline supplies robust and downstream margins back in more normal shape, retail gasoline prices aren't likely to shoot up again without strong impetus from crude. Last week wholesale prices were still falling in the West, especially unbranded, down 12.55 cents for the week, while racks elsewhere were taking baby steps up.

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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