Oil prices still primary driver for gasoline prices, FTC says

While a broad range of factors influence gasoline prices, worldwide crude oil prices continue to be the main driver, the US Federal Trade Commission’s Bureau of Economics concluded in a new report.

“Our report spells out the factors that determine what consumers pay at the pump, and why [gasoline] prices seem to ‘rocket up’ but ‘feather down’,” FTC Chairman Jon Leibowitz said on Sept. 1.

He said it also looks at how quickly retail gasoline prices adjust to wholesale gasoline and crude oil price changes; refining margins; the possible impact of futures speculation; and the effect of the Organization of Petroleum Exporting Countries.

The latest report builds on previous FTC staff reports, including a 2005 study of gasoline price factors and parts of a 2004 report that examined petroleum industry mergers, structural changes, and antitrust enforcement, according to FTC. The new report also summarizes and comments on new information from academic and other researchers, it added.

In its discussion of retail price “rockets and feathers” or asymmetric pass-through, the report said that causes are not fully understood, but researchers have suggested several possible causes. “The explanation currently with the most support is that consumers search for lower cost gasoline more intensely when prices are rising than when they are falling,” it said. “As a result, [retailers] do not face as much competitive pressure as prices fall and are less compelled to reduce price.”

Remaining questions

While there is some evidence that consumer search intensity is different when prices are increasing as opposed to decreasing, it is not clear why search costs would vary across cities which display differing degrees of price asymmetry, the report continued. It said FTC may examine consumer welfare effects of asymmetric pass-through further in the future.

The report also examined price cycling, which it described as a recurring “saw tooth” pattern of retail price movements characterized by periods of a relatively small number of large price increases, followed by a period of more numerous, but smaller price decreases.

It said analysts who have studied retail gasoline pricing in all 50 US states have not found price cycling outside of the Midwest, and only since 2000. “A number of studies that consider US data find that Midwest cycling is explained, in part, by the greater presence of independent, nonrefiner, firms in that region,” it said.

The report also found that worldwide crude prices have changed since 2005 from shifts in both supply and demand. While demand fell during the recent global recession, overall consumption grew by almost 7% between 2004 and 2010, putting upward pressure on crude prices, it said. Production increased and additional supplies moderated upward price pressure somewhat, but more than 70% of the world’s proved reserves are in OPEC member countries, it noted.

“Because OPEC’s production increased at a slower rate than that of non-OPEC countries between 1974 and 2010, its share of global production has fallen from 54% to 42%, despite its significant reserves,” the report said. It added that while OPEC has some ability to affect crude prices by trying to have its members limit exports, its effectiveness as a cartel is limited. The largest increases in non-OPEC crude supply have come from the US, Russia, Canada, and Azerbaijan, it said.

Other price influences

Factors beyond oil costs that have significantly influenced US retail gasoline prices since 2005 include refinery capacity losses and pipeline disruptions following Hurricanes Katrina and Rita that year, the report said.

“Gasoline prices also increased significantly relative to crude prices in mid-2006 and mid-2007, due to several factors including increased demand, higher ethanol prices, reduced refining capabilities, and the lingering effects of the 2005 hurricanes,” it said. “Prices fell during the 2008 recession, and generally remained low, relative to crude prices, between 2008 and fall of 2010.”

FTC analysts found only minor changes in the US petroleum and refining market structure since 2005. “While there has been a small decrease in the number of US refineries, overall refining capacity has increased by 3.6%,” the report said. “Refiners now appear to be less integrated into gasoline retailing, as several large refiners have sold parts of their retail operations.”

It said refinery capacity utilization rates have gone down recently, and the trends of a decreasing number of domestic refineries and increasing industry consolidation have abated. “Refining capacity increased by 2.3% between 2006 and 2011, a smaller increase than the 3.7% increase for between 2000 and 2005,” it said. “But despite lower distillation capacity growth, average annual capacity utilization in recent years fell below 90%, reaching about 84% in 2010, the lowest level since 1987.”

Several reasons account for the refinery capacity utilization rate reduction, including capacity additions (although at a slower rate than in the early years of the last decade); increased use of ethanol as a gasoline blend stock since 2005, which effectively expanded refining output capacity; and reduced refined product demand after 2008 during the general economic recession, the new FTC report said.

Contact Nick Snow at nicks@pennwell.com.

Related Articles

PHMSA proposes pipeline accident notification regulations

07/02/2015 The US Pipeline and Hazardous Materials Safety Administration has proposed new federal oil and gas pipeline accident and notification regulations. ...

FourPoint Energy to acquire Anadarko basin assets from Chesapeake

07/02/2015 FourPoint Energy LLC, a privately owned Denver company, plans to acquire oil and gas assets from Chesapeake Energy Corp. subsidiaries Chesapeake Ex...

Puma Energy completes purchase of Murco’s UK refinery, terminals

07/02/2015 Singapore-based Puma Energy Group Pte. has completed its purchase of UK midstream and downstream assets from Murco Petroleum Ltd., a subsidiary of ...

BP to settle federal, state Deepwater Horizon claims for $18.7 billion

07/02/2015 BP Exploration & Production Inc. has agreed in principle to settle all federal and state claims arising from the 2010 Deepwater Horizon inciden...

MARKET WATCH: NYMEX oil prices plummet on crude inventory build, Iran deadline extension

07/02/2015 Oil prices plummeted more than $2/bbl July 1 to settle at a 2-month low on the New York market after a weekly government report showed the first ri...

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...

Shell Midstream Partners takes interest in Poseidon oil pipeline

07/01/2015 Shell Midstream Partners LP has completed its acquisition of 36% equity interest in Poseidon Oil Pipeline Co. LLC from Equilon Enterprises LLC, a s...

MARKET WATCH: Oil prices decline as US crude inventories post first gain in 9 weeks

07/01/2015 Oil prices on July 1 surrendered much of their gains from the day before after the release of a government report showing the first rise in US crud...

FWS issues Shell letter of authorization on Chukchi Sea lease

07/01/2015 The US Fish & Wildlife Service issued Shell Gulf of Mexico Inc. a letter of authorization (LOA) related to the potential disturbance of polar b...
White Papers

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by
Available Webcasts


The Resilient Oilfield in the Internet of Things World

When Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.

register:WEBCAST



On Demand

Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors

register:WEBCAST


Driving Growth and Efficiency with Deep Insights into Operational Data

Wed, Aug 19, 2015

Capitalizing on today’s momentum in Oil & Gas requires operational excellence based on a clear view of what your business data is telling you. Which is why nearly half* of oil and gas companies have deployed SAP HANA or have it on their roadmap.

Join SAP and Red Hat to learn more about using data to drive process improvements and identify new opportunities with the SAP HANA platform running on Red Hat Enterprise Linux. This webinar will also show how your choice of infrastructure impacts the performance of core business applications and your ability to achieve data-driven insights quickly and reliably.

*48% use SAP, http://go.sap.com/solution/industry/oil-gas.html

register:WEBCAST


OGJ's Midyear Forecast 2015

Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected