The U.S. Energy Information Administration’s weekly gasoline and diesel fuel price update released on January 25, 2016. It showed that US regular gasoline retail prices averaged $1.85 per gallon. Retail gasoline prices fell by $0.05 per gallon or 3.03% from the previous week’s price of $1.91 per gallon recorded on January 18, 2016. The current gasoline prices are ~9.2% lower than the prices in the same period last year.
Gasoline prices by region
Gasoline’s average retail price in the West Coast region was $2.63 per gallon on January 25, 2016. The gasoline prices in the Rocky Mountain, Midwest, and East Coast regions were $1.86 per gallon, $1.63 per gallon, and $1.86 per gallon, respectively. The Gulf Coast’s retail gasoline price was lower at $1.62 per gallon compared to the other regions’ prices.
High refinery runs pressured the prices
In the winter months, the gasoline demand usually falls. Most of the vehicles go offline due to colder temperatures. Road trips will decrease. So, the gasoline demand will fall in the winter months. The long-term lower crude oil price environment increased the refinery margins. This caused refineries to operate at more than 90% of their operable capacities. This contributed to the inventory levels.
The gasoline inventories have risen since the beginning of 2016. For the week ending January 15, another 4.6 million barrels of gasoline were added to the inventory levels. This had a massive impact on the price. However, refineries don’t want to cut down the production levels because of the high gasoline crack spread. So, gasoline prices will see a downtrend until the refineries change from the winter gasoline blend to the expensive summer blend.
Long-term lower gasoline prices will reduce the refinery margins. Lower gasoline prices are getting support from lower crude oil prices (USO). So, any changes in the crude oil prices will impact refiners’ margins including Alon USA Energy (ALJ), HollyFrontier (HFC), Phillips 66 (PSX), Marathon Petroleum (MPC), Sunoco (SUN), and Western Refining (WNR).
In the next part of this series, we’ll discuss the gasoline price differences in various regions.