ALEXANDRIA, Va. – In May, retail gas prices have jumped more than 35 cents per gallon (from a weekly average of $2.078 on May 4 to $2.435 on May 26, according to U.S. Energy Information Administration (EIA) data, and consumers and reporters want to know why.
Here is what’s going on:
- Crude oil prices are on the rise. The latest numbers from EIA show that spot WTI crude oil prices have jumped about $13 in the past month. A barrel of oil contains 42 gallons, making each $1 increase per barrel the equivalent of a 2.4 cent increase per gallon. That means crude oil prices have contributed more than 30 cents per gallon to the retail price of gasoline in the past month.
- Wholesale gas prices have increased even faster than crude oil prices. The latest data from EIA shows that RBOB regular spot prices have increased more than 45 cents per gallon from April 22 ($1.3755) to May 19 ($1.8325). (RBOB is the NYMEX traded wholesale gasoline commodity and is used to produce reformulated gasoline, which represents more than 30 percent of the gasoline consumed in the nation.)
- Retail prices have lagged behind wholesale prices. Retail prices have increased 38 cents — or 7 cents less than wholesale prices — since April 20, according to EIA data.
The end result is that retailers are not profiting from higher prices. In fact, they are being hurt. The latest numbers from the OPIS Retail Fuel Watch, dated May 21, shows that the average weekly markup on a gallon of gas was 9.4 cents per gallon. The average markup over the past 30 days is even lower — 8.7 cents per gallon. NACS estimates that breakeven for gas is 11 to 14 cents per gallon, so retailers have reduced their margins to the point where they have likely lost money selling fuel for the past 30 days — if not longer. This continues a trend that has gone on throughout 2009.
The April 2 OPIS Retail Fuel Watch called retail margins for the first quarter of 2009 “abysmal” and noted that it “had the worse rack-to-retail margins on record” — only 9.8 cents per gallon. This is not new. EIA has developed a formula to demonstrate that retailers suffer when wholesale prices increase.
There are two factors that have contributed to rising prices:
- Demand is picking up. Since May 1, weekly demand for finished gasoline is up 3.5%. This increase is not uncommon and coincides with the longer days, the end of the school year and the onset of summer activities and vacations.
- The seasonal transition to summer-blend fuel is almost complete. Gasoline sold in the summer must meet more stringent environmental controls than that sold in winter. These fuels are more complex and expensive to produce, and fewer gallons can be produced from each barrel of oil. The transition period concludes June 1 when all gasoline sold at the retail level must meet specific requirements, where appropriate. This affects prices across the country. Since the final implementation of the Clean Air Act Amendments in 2000, retail gas prices have risen by an average of 52 cents from the first week in February to their seasonal peak. These increases have ranged from a low of 20.1 cents in 2003 to a high of $1.126 in 2008. This year they have risen by 54 cents per gallon since February 2.
Here are some additional resources to help explain what’s going on at the retail level:
- Every year NACS publishes a gas price kit to explain the factors related seasonal transition — as well as consumer perceptions about retail prices.
- Tom Kloza, the chief petroleum analyst for OPIS, has an irregularly published blog that looks at trends.
- The U.S. Energy Information Administration has a weekly report, “This Week in Petroleum,” which reviews market conditions.