The good news for fleet managers is that retail gasoline prices continue to plummet to levels not seen since early 2004. Pump prices are now more than $2.30 per gallon less than when they peaked just four months ago. The bad news is the reason we are seeing prices fall so aggressively is because the economy is in turmoil.
Wholesale gasoline prices in some markets hit new 62-month lows last week, and the downturn was clearly led by the U.S. West Coast. Spot prices (where oil traders trade bulk cargoes of fuel for distribution into terminal and stations) for Bay area gasoline dipped as low as 86 cents a gallon and Los Angeles flirted with 90 cents a gallon. While much of the world was wondering whether $40 a barrel would hold for WTI, these gasoline markets were valued at just $37-$39 a barrel.
The highlight in the most recent Energy Information Agency data was the subtle but significant cut in crude oil runs. Refiners can't continue to run at rates where they manufacture profitable diesel, but lose money on unprofitable gasoline.
Runs dropped from 86.2% to 84.3% last week and the total amount of crude and feedstock processed in the U.S. dropped by 321,000 b/d nationwide.
The lower crude input knocks back any bullish sentiment related to the 500,000-barrel drop in crude stocks. Inventories are 20.1 million barrel higher than last year, and because of the lower runs, it represents about 22 days of supply. With worries about an absolutely ugly economy in January, some observers believe 20-21 days' supply of crude represents more than enough.
The lower runs should add to the pressure in international crude markets. Consider that U.S. refiners brought in 10.15 million barrel less crude last week from foreign sources.
Diesel prices are now 93 cents per gallon more than gasoline at retail. This represents the highest basis ever witnessed and suggests that diesel should see some sizeable downshifts in the near future.
