The US is producing crude oil at a rate around 6 million barrels per day. This is the highest output the US has enjoyed since 1998 and the resulting domestic inventory is helping to keep pump prices in check. But retailers are finding their margins on diesel fuel thinning dramatically. Retail prices hover nationwide around $3.95 per gallon. Not bad for consumers, but the retailers are paying more for their diesel than their margins can stand.
Since June 2012, diesel margins have dropped from 45cents/gallon to a meager 12cents/gallon. Wholesale prices for diesel have climbed while retail prices have remained relatively stable. This leaves retailers holding the bag.
Unrest in Sudan, Yemen and Syria slowed crude oil production in those nations by about 1 million barrels per day this year. At the same time, US and European sanctions aimed at Iran’s nuclear program have not only played a role in reducing Iranian exports of crude but have also raised anxiety through Middle Eastern shipping lanes. These anxieties inflated petroleum prices during the first quarter of 2012 and although prices dipped during the second quarter, the prices of petroleum and crude oil are on their way back up.
Industry basics correlate a $1 price increase per barrel of crude to a 2.5cents/gallon uptick in the price of retail gasoline and diesel fuel. Increased domestic production of crude oil will help keep prices stable and should help ease anxieties over unrest in the Middle East. In the mean time, retailers may have to raise prices at the pump to cover their razor thin margins.
