This is a Jekyll/Hyde summer for gasoline prices, and Mr. Hyde has currently vacated his office for the Hamptons or Martha’s Vineyard. While much of the world last week engaged in the hyperbolic examination of $90-$100 barrel crude oil, the price of gasoline quietly dropped by more than a nickel and today stands at $2.968 gal. It will drop appreciably lower in the next few days, helped by wholesale numbers that have plunged by 20-69cts gal in less than two weeks.
Dramatic wholesale fluctuations are nothing new. After all, huge intraday, intraweek, and intramonth price swings were on display throughout the second quarter. But comparing the second quarter to the ongoing third quarter is like comparing Al Gore to Ricki Martin. The first ten days of July saw updrafts of 20-60cts gal, and the succeeding 13 days have given up those gains and more. Some refiners are no longer “Livin’ La Vida Loca.”
The nationwide gasoline average now stands at $2.968 gal, which is 2.3cts gal below the average on this day in 2006. However, thanks to higher demand (Department of Energy stats say that U.S. consumers used a record 408-million gal per day of gasoline most recently) the aggregate daily bill of $1.21-billion is about $8-million higher than last year. I would not be surprised to see gasoline demand tail off through the rest of the summer, and ultimately take the nationwide bill below $1.1-billion. Wholesale prices began a multiweek collapse last August 10. They may face a similarly hostile late Summer this year.
Some regional flavor: Twenty states have fuel costs that are in excess of where they stood last year. Thirty states have cheaper costs. The largest year-on-year increase is in Iowa where motorists now pay about 6.9cts gal more than July 17, 2006. The largest year-on-year decrease is in Delaware, with fuel prices there 9cts gal lower than year ago.
For details, visit www.fuelgaugereport.com
I expect that many more states will enter the “cheaper than last year” camp in the remainder of July. There appears to be enough downward momentum to take pump prices down another 5-10cts gal over the short term. Prices could ultimately recover in August, but they’ll need some events - -in the form of tropical weather or refinery downtime - - in order to do so.
The following chart describes the divergent paths that crude oil and gasoline have followed in the last thirteen days. Current spot prices are gleaned from the OPIS Spot Ticker (www.opisticker.com) that follows real time bulk markets for gasoline throughout the day (yes, that is a shameless plug, but it underscores the fact that the futures’ quotes on your CNBC or Bloomberg screens don’t give indications of what’s happening in the local markets).
Current Wholesale Gas Price July 10 Price
N.Y. Harbor $2.0715 gal $2.337 gal
Gulf Coast $2.0650 gal $2.367 gal
Okla/Kansas origin $2.2400 gal $2.805 gal
Chicago $2.1000 gal $2.790 gal
Los Angeles $2.2300 gal $2.485 gal
Pacific Northwest $2.1400 gal $2.345 gal
Crude Oil Futures $72.81 bbl $74.93 bbl
Conclusion: The environment for refiners has become more hostile in the period. Midwestern markets saw gasoline fetch more than $45 bbl above the price of crude early in the month; that has faded to less than $20 bbl. That is still, however, a very reasonable return for refiners and well above historical averages.
The U.S. Gulf Coast, where the greatest cluster of U.S. refineries is found, has witnessed a drop in gasoline prices from about $99.41 bbl on July 10 (hint: take the price of gasoline per gallon and multiply by 42 for a per bbl price) to about $88.73 bbl at the moment. That still yields a gasoline margin of about $12 bbl, high by historical standards, but sharply below the renaissance levels witnessed from March through early July.