After declining during the fourth quarter of 2012, the wholesale gasoline market has not seen large price movements in recent weeks, and the changes that have occurred have been generally offsetting, with crack spreads increasing somewhat on the Gulf Coast and in Los Angeles, while remaining relatively stable in New York and decreasing further in Chicago. As a result, U.S. average retail gasoline prices have increased less than two cents per gallon since December 31, 2012, averaging $3.32 per gallon on January 21.
As the major U.S. refining center, the Gulf Coast is a key market for gasoline and ships gasoline to regions throughout the country. While Gulf Coast gasoline markets have strengthened in January, they are still extremely weak. Crack spreads (measured here as the difference between the conventional gasoline spot price and the Brent crude oil spot price) in the region have been persistently negative since November. In January, they have thus far averaged -4 cents per gallon, an increase from the -13 cents per gallon they averaged in December. In December, crack spreads for conventional gasoline were also negative in Los Angeles but have since recovered, averaging 8 cents per gallon in January as several refineries have undergone maintenance on gasoline-producing units. New York crack spreads in January have been largely unchanged, up just a penny from the 12 cents per gallon they averaged in December. Chicago is currently the weakest market. Crack spreads in the area have been negative since November, but in January they have become even more negative, averaging -24 cents per gallon compared to -19 cents per gallon in December. Note that the Chicago crack spread is shown using Brent crude oil to be consistent with other regions; however, refineries in the Chicago market are more likely to have access to lower-priced West Texas Intermediate (WTI)-linked crudes, meaning refiners could be seeing small positive margins for gasoline. In this market structure, some refineries in the Midwest can access cheaper WTI-linked crudes and sell gasoline into a Brent-priced product market. This is because the Midwest has to attract some gasoline from the Gulf Coast.
Similar to the situation in wholesale markets, stable retail gasoline prices at the national level mask regional variation. The most notable exception to the trend of stable prices has been in the Rocky Mountains. On November 5, Rocky Mountain prices were 12 cents per gallon higher than the U.S. average, but they fell to $2.88 per gallon by January 21, 44 cents per gallon lower than the U.S. average. While there are no observable spot prices for the Rocky Mountains, a similar dynamic is occurring there, where refinery runs are high because refineries in the Rockies seek to capture margins from the region's lower crude oil costs. Because the Rockies are a relatively isolated market with few significant pipeline connections to other U.S. markets, high levels of gasoline production can sometimes depress retail prices in the region compared to the U.S. average; a similar situation occurred last year.