Fuel Price Surge Could Thwart Economic Rally
6 September 2000
Fuel Price Surge Could Thwart Economic Rally
LAKEWOOD, N.J., Sept. 5 Stiff price increases seen for
gasoline and diesel in August could provide a treacherous speed bump for the
U.S. economy this quarter. An analysis by the Lakewood, New Jersey based Oil
Price Information Service (OPIS) reveals that the unprecedented wholesale
increases seen in recent weeks have yet to make their way downstream.
Average wholesale (rack) unleaded gasoline prices moved up by 12-32cts
during August, recently published OPIS data shows. The smallest increases took
place in Midwestern states where the wholesale cost of gasoline added "just"
12-19cts gal. The highest increases occurred in California, where refinery
problems pushed wholesale numbers for the reformulated gasoline up more than
30cts gal.
Most of the increases have yet to be passed on to street prices. Retail
gasoline actually moved down in cities such as Des Moines, Detroit, and even
Los Angeles despite the steep hikes. Modest increases were the norm in most
other cities across the country.
As a result, independent retailers across the U.S. are facing a margin
squeeze, the likes of which has not been seen since the Persian Gulf War. When
adjusted for local, state and federal taxes, gasoline is selling at less than
replacement costs in many regions of the country. Some large convenience store
chains saw losses on gasoline sales over the Labor Day holiday because of the
time lag between wholesale and retail prices. OPIS tracks daily data on more
than 350 individual wholesale markets and over 100,000 retail prices, and many
sites now feature red ink for gasoline margins.
Street prices for diesel fuel are also not yet reflecting the violent
wholesale upswings of August. Average wholesale costs for diesel moved up by
more than 25cts gal in August, surpassing $1.00 gal in most portions of the
country. But retail diesel prices have only matched 30-60% of the wholesale
gains. Once the higher wholesale numbers work their way into the downstream
sector, trucking companies, buses and other large fleets may have to pass on
another round of fuel surcharges.
OPIS analysts are predicting that September will be a pivotal month for
oil markets. Two OPEC meetings are scheduled, and there is pressure on the
Clinton/Gore Administration to take action that might douse white hot oil
markets. High international and domestic oil costs could provide the first
major debate point for the major presidential candidates.
OPIS data shows staggering year-on-year differences in wholesale prices.
Nationwide wholesale gasoline prices are about 35cts gal higher than they
stood on Labor Day weekend 1999, and they are a whopping 65cts gal above Labor
Day 1998 levels. Wholesale diesel numbers are on average 40cts gal higher than
they were last year, and some 60cts gal above prices seen two years ago.
Prices On 8/1/00 Prices 8/30/00 Monthly Price Change
City Retail Rack Retail Rack Retail Rack
Champaigne, IL 133.93 79.73 146.42 98.37 12.49 18.64
Chicago Il 143.32 84.95 146.44 101.82 3.12 16.87
Cleveland, OH 137.74 80.59 146.03 96.90 8.29 16.31
Des Moines, IA 148.60 84.51 142.16 97.62 -6.44 13.11
Detroit, MI 150.49 84.46 142.10 96.50 -8.39 12.04
Milwaukee, WI 139.40 84.46 142.10 96.50 2.70 12.04
Minneapolis, MN 137.77 85.14 156.14 100.78 18.37 15.64
St. Louis. MO 137.86 84.49 142.35 100.80 4.49 16.31
San Francisco, CA 191.87 106.14 194.79 135.86 2.92 29.72
Los Angeles, CA 161.55 104.90 159.25 137.20 -2.30 32.30