Retail Diesel and Gasoline Prices

It’s been a few weeks since this publication looked at retail fuel prices, and with prices so high currently, now is a good time to see what’s going on with prices at the pump. At the national level, diesel prices have risen by roughly 20 cents since mid-August, before Hurricanes Harvey and Irma took so much supply offline in the Gulf Coast and Southeast. Retail gasoline prices have risen a full 30 cents during the same period.

The average price of diesel fuel this week was $2.802, up 40 cents above this time last year. Prices are now solidly above 2015 levels, though this is in large part due to higher prices following Hurricane Harvey. Remember that Harvey took roughly 25% of the nation’s total refining capacity offline, and roughly 10% of refining capacity remains offline or at reduced rates.

The outages can be seen in the regional breakdown – the Lower Atlantic (supplied by the Colonial Pipeline) has some of the largest gains In the country this week, with a 5 cent gain since last week (vs a 4.4 cent increase nationwide) and at 45.3 cents above last year (vs 40.3 cents nationwide).

Of course, retail prices have not risen in a vacuum – wholesale diesel prices also grew rapidly during the storm, and over the past month have risen by roughly twenty cents. For a brief period leading up to Harvey, retail prices remained flat while wholesale prices rose quickly, causing rack-to-retail spreads to dip to 2017 lows (under 22 cents) in late August. Now that the storm has passed, wholesale prices have begun the slow recovery process, though retail prices have not yet begun to recover. NYMEX prices have begun to fall significantly, but high basis levels, particularly in the Southeast, have kept OPIS wholesale prices high.

A similar story is true for gasoline prices. Gasoline prices for the week averaged $2.685, 48.3 cents above the price at this time in 2016. The largest gains by far have been in the Gulf Coast (up 52.8 cents from last year) and the East Coast (58.3 cents up from last year). Gasoline prices responded much more dramatically to the storms, with Labor Day and coastal evacuations causing demand to rise while supply was tight.

Gasoline rack-to-retail spreads also dropped to an annual low right as Harvey hit – spreads briefly dropped to just 6.75 cents at the height of storm as wholesale prices surged 20 cents in just a few days. Gas stations are hesitant to raise prices and lose customers, so retail price hikes tend to lag wholesale prices. These extremely tight spreads did not last, however, and now spreads are at their highest point of the year, 39.2 cents.

It’s worth noting for gasoline that basis prices have risen significantly in recent weeks. OPIS national average gasoline prices tend to be in line with NYMEX prices, with OPIS averages fluctuating about 5-8 cents above or below the NYMEX. In the last three weeks, the difference has averaged roughly 14 cents higher; spreads peaked at almost 22 cents last week.

OPIS diesel prices, which normally average about 8 cents above the NYMEX, have also climbed roughly 10 cents above their historical spreads, reaching 18.15 cents for the week ending Sept 11. These basis premiums have impacted all customers who have not locked in the basis price (ie, the local pricing component) for their fuel.