uploads///US Regular Gasoline Prices

Crude Oil Prices and Refinery Margins: Catalysts for Gasoline Prices

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Gasoline prices

The EIA’s (U.S Energy Information Administration) weekly gasoline and diesel fuel price update released on January 11, 2016. It showed that US regular gasoline retail prices averaged $1.99 per gallon. Retail gasoline prices fell by $0.03 per gallon or 1.6% from the previous week’s price of $2.02 per gallon recorded on January 4, 2016. The current gasoline prices are ~7.1% lower than the prices in the same period last year.

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Gasoline prices by region

Yesterday’s average price for regular retail gasoline was $2.63 per gallon in the West Coast region. The Rocky Mountain, Midwest, and East Coast regions’ gasoline prices were $1.94 per gallon, $1.82 per gallon, and $1.97 per gallon, respectively. The Gulf Coast’s regular retail gasoline price was $1.72 per gallon.

Gasoline’s inventory build impacted gasoline prices

Gasoline prices are mainly influenced by three factors—oil prices, refinery margins, and gasoline demand. Crude oil prices were below $35 per barrel. They continue to subside. OPEC’s (Organization of the Petroleum Exporting Countries) recent decision to stand on its current production levels made crude oil prices worse. It’s adding roughly 1.7 MMbpd (million barrels per day) of crude oil more than the consumption levels. The recent slowdown in the Chinese economy will result in lower imports. This could make crude oil prices worse. So, gasoline prices are expected to remain lower for longer.

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In the last week, gasoline prices fell due to gasoline inventories rising to record levels of 10.6 MMbbls (million barrels) for the week ending January 1, 2016. This raises concerns about the gasoline demand in the next two months in the winter season. Lower crude prices also forced refineries to operate at maximum capacities. This resulted in a huge inventory build. It impacted gasoline prices.

What it means for refineries

Falling gasoline prices have a negative impact on refineries’ revenue. Due to selling at lower prices, refineries’ profitability like Western Refining (WNR), Tesoro (TSO), Phillips 66 (PSX), HollyFrontier (HFC), Alon USA Energy (ALJ), Valero Energy (VLO), and Marathon Petroleum (MPC) will fall.

Together, Tesoro and Marathon Petroleum account for 2.4% of the iShares Dow Jones US Energy Sector ETF (IYE).

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