How Low Can it Go?

By Brian L. Milne, Refined Fuels Editor for DTN

Wholesale prices for regular grade gasoline in large metropolitan markets across the country are below year-ago values, with retail prices in many of these markets now also falling under what their prices at the pump were last year.

The remaining retail markets that are still holding a premium to their 2007 prices won’t in the coming days, as the decline in wholesale markets continue to press pump prices down.

Some wholesale markets—and we’re talking a wide yet sporadic geographic area from the Mid-Atlantic to the Midwest and from the Southeast to Southwest did see a slowdown in the price drop, with some local markets posting an increase. Metropolitan markets that are in this group include Atlanta, Richmond, Va., Orlando, New Orleans, Chicago and San Antonio.

The reason is because of local supply-demand dynamics that are tightening, meaning that there is less wiggle room for available supply to meet existing demand. However, even with the increase in these wholesale markets, which was modest, there remains more downside in retail prices “baked in the cake” to reference trade jargon.

Demand is down significantly as Americans drive less in 2008 for the first time in 17 years, but refiners have slowed production, with some encountering losses in their margins in processing crude into gasoline at a loss. This, plus a stable price in crude oil will work to limit the decline in wholesale markets as we head towards year-end.

Wholesale markets along the West Coast fell sharply last week, and that will bring price relief to consumers there. California typically has the highest retail prices for gasoline, but lately, there are few things in the market that are typical.

About the Author
Brian L. Milne is the Refined Fuels Editor for DTN—a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for nearly 14 years as an analyst, journalist and editor. He can be reached at brian.milne@dtn.com.

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