Expert Insight: Gas Prices Begin August at 4-Year Low

Wide split between highest & lowest prices an opportunity to retailers, consumers

Published in CSP Daily News

By  Tom Kloza, Chief oil analyst

Aug. 1, 2014, national gasoline-price data courtesy GasBuddy.com

WALL, N.J. -- That headline is not a misprint, although it begs for some clarification. Less than 30 days after print and electronic media accurately noted the highest Independence Day prices in six years, most Americans are seeing the lowest Aug. 1 pump prices since 2010.

GasBuddy today reports a nationwide average of $3.509 per gallon, representing a 14.9-cent drop from the July 4th price of $3.658 gallon. Most of the erosion occurred in a 32-day streak of consecutive drops that ended on July 30, when the nationwide average wobbled up a scant 0.1 cent per gallon. Increases in some local Great Lakes metro areas yesterday probably represent a head fake, rather than a new trend, and GasBuddy notes that most Americans are seeing their lowest 2014 costs since March 14, which was one day ahead of the secession vote in Ukraine’s Crimea region.

The current price of $3.509 compares with an Aug. 1 nationwide average of $3.628 per gallon last year; $3.526 in 2012; and $3.70 in 2011.

Behind the Price Drops

U.S. spot markets for gasoline are down anywhere from 25 cents to 45 cents per gallon from where they stood in the immediate aftermath of the Iraqi violence that dominated June headlines. Worries about Middle East supply as well as concern about the shenanigans of Russian President Vladimir Putin have not offset robust oil-production gains in the United States and Canada. Financial funds holding futures and options’ contracts in crude liquidated about 75-million barrels of paper positions in July alone.

August typically brings a choppy environment for U.S. fuel prices thanks to the possibility of tropical weather impacting Gulf Coast and Caribbean refining operations. But unless a named hurricane hits refining clusters between Corpus Christi, Texas, and Pascagoula, Miss., GasBuddy projects that peak 2014 motor-fuel prices are in the rearview mirror for most drivers.

What’s To Come?

Don’t write off modest August price hikes quite yet, however.  The eighth month is typically transitional and routinely sees average prices drifting in the last third of the driving season. Demand this summer hasn’t been gangbusters, but it appears to be hanging above 9-million barrels per day, or approximately 378-million gallons every 24 hours. 

The easier prediction comes about 40 days from now. Historical trend analysis suggests a demand drop after Labor Day that will fall by 10-million gallons to 12-million gallons per day when compared to driving season weeks. Then, on Sept. 15, the formulae for gasoline changes in all U.S. states except California, and cheaper components can be used to create autumn blends. One of those key components—butane—currently  trades at a record discount to gasoline of about $1.50 per gallon, and provides a cheap additional “flour” with which to “bake the gasoline cake.”

On the first day of August, the GasBuddy database included about 24 stations in four states with a price point of less than $3 per gallon. By November, I predict we’ll see thousands of sites where that number can be bettered.

There’s one other feature of the current market that deserves special attention. The difference between the highest 5% of gas prices and the lowest 5% of gas prices has never been wider. The typical GasBuddy mobile app user can easily save 30 cents per gallon if they actively search for the lowest price as August begins.

While the ongoing price slide represents a tough third-quarter commencement for U.S. and multinational refiners, it provides a silver lining for marketers that saw a tough first half of 2014. OPIS data, combined with GasBuddy retail numbers, recorded a spectacular July for jobbers and chain retailers.

Not including costs beyond 1.5 cents per gallon in transportation costs, as well as labor charges, credit-card fees and equipment rental, OPIS and GasBuddy recorded an average pool margin of 29.5 cents per gallon in July, almost twice the level seen in winter and reflecting the highest gross pool margin since the price crash of 2008.