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Fuel Marketer Intelligence: Supply Chain Dynamics to Retail Fuel Prices

It was a chaotic start to 2016 for the oil market, with crude futures plumbing 12-year lows as turmoil in China’s stock exchanges and devaluation of its currency, the yuan, roiled equity markets worldwide, and oil traders sold off on worry over global demand growth. Gasoline, a bright spot for an otherwise dreary 2015 for many in the oil industry, was under heavy price pressure in starting the year following a huge build in inventory and plunge in demand.

Nationally, retail gasoline prices have slipped below the psychologically significant $2 gallon threshold, although you wouldn’t know it if you’re in California, where a parade of gasoline unit outages at regional refineries beginning last February with ExxonMobil’s Torrance refinery kept the market product short. Relief for the state’s drivers appears to be on the way, with gasoline inventory building.

In the primary wholesale market, basis values for CARBOB gasoline in the Los Angeles Basin plunged nearly 50cts gallon from summer-high levels from the last day of 2015 to the first week of 2016. Retail gasoline prices in LA ranged as high as $4.31 and as low as $2.46 gallon in 2015, according to the Energy Information Administration.

In the Chicago primary wholesale market, CBOB regular—conventional gasoline that requires 10% ethanol to be mixed into the blendstock to become finished gasoline, slid below $1 gallon in the opening days of 2016, down more than 20cts gallon from where they ended 2015. Chicago was another region that saw a wide range in retail prices in 2015 from $2 gallon to $3.37 gallon, EIA data shows.

Gasoline in the primary wholesale market trades in a basis or cash differential to the futures market on the New York Mercantile Exchange, with the RBOB contract sinking to a new seven-year low of $1.1135 gallon in 2016. The decline by gasoline futures came as domestic and international crude futures tumbled to 12 year lows, and are now on the verge of breaking below $30 bbl.

Forward visibility for the oil market is shrouded with uncertainty, although more pain for oil producers is widely expected in 2016. New supply in the global oil market is outpacing demand by one to two million bpd, with the EIA reporting total crude and oil products inventories in the United States at a record high. Moreover, Iran, a member of the Organization of the Petrol...