Gasoline prices at the pump are likely to keep rising, even if the price of oil has dipped over the past week.
Oil prices have declined about 15 percent from last Monday's high of nearly $115 a barrel. At the close of business today, the CME Group increased margin requirements by 25 percent for West Texas Intermediate crude futures. Yet June WTI oil future posted a $1 gain and settled near session highs at $103.88 a barrel.
Gasoline futures led the way. Gasoline cracks, which reflect refiners' margins, has soared over $10 in a week to over $38 a barrel.
"Normally, we see a $3 to $4 move over the entire summer," says gasoline trader Anthony Grisanti of GRZ Energy. "This is a huge rally."
The price surge is due to clusters of refining issues all over the country, with a number of major refiners shut down or not fully operational due to power outages, unplanned maintenance, fires, and now... flooding.
The fear of flooding along the Mississippi River and its potential impact on refineries from Memphis to the Gulf of Mexico has driven up gasoline futures as well as wholesale gasoline prices in many parts of the country. River waters crested in Memphis Tuesday, reaching nearly 48 feet, the highest level in more than 70 years. Hundreds of residents were forced from their homes — and causing minor refinery glitches.
Valero's 180,000 barrel per day refinery in Memphis has "slightly reduced" its gasoline processing rates, according to Energy News Today Inc. But Valero's Memphis refinery, as well as its 250,000 barrel-per-day refinery in St. Charles, La., "remain in operation and we do not expect any interruption to production," according to Valero spokesman Bill Day.
Still, gasoline supplies are tight and demand is declining, but not at the same rate as a month and a half ago. The latest report from MasterCard Spending Pulse found four-week average gasoline demand fell 1.1%, the slightest decline in six weeks. Flood worries are exacerbated by the fact that US gasoline inventories are down 9 percent compared to last year and nearly 4 percent lower than the same time during the 2008 financial crisis.
Wholesale prices in cash markets in various parts of country have risen 30 cents to 40 cents since Friday. Spot prices along the Gulf coast and Chicago are especially high, trading at a premium to RBOB gasoline futures prices in New York.
"Usually, those cash markets trade at a discount to gasoline futures," says OPIS analyst Tom Kloza. "Spot gasoline prices are going bananas."
The national average for regular self-serve gasoline is $3.95 a gallon today, according to AAA. It's actually one cent lower than a week ago but that probably won't last for long. Even if oil prices fall, rising wholesale gasoline prices will keep prices higher at the pump. In fact, retail gasoline prices may soon be higher than they were a week ago.