U.S. retail sales could fall this summer because gasoline prices are rising again. The U.S. Energy Information Agency (EIA) reported that there is no state in which the price of a gallon of regular gasoline was below $2 a gallon.
All is not bad news for retailers; the national average price of gasoline on April 27, 2015, was $2.57 a gallon, which was $1.14 less than for the same date last year when the average price was $3.71 a gallon. That means average Americans still have much more extra cash to spend.
Filling the average gas tank (which holds around 15 gallons) would cost $38.55 compared to $55.65. That means the average American still has an extra $17.10 in his or her pocket when he or she leaves the gas station.
Drivers of diesel-burning vehicles do not get much of a break either. The EIA reported that the average price of a gallon of diesel was $2.81 on April 27, 2015, down $1.16 from the same date last year. That means it costs around $42.15 to buy 15 gallons of diesel fuel.
Gas prices have risen recently, but the real cause of the price increase appears to be refinery issues rather than shortages. The Los Angeles Times reported that there were technical problems that reduced production in at least three refineries in California.
Gas Prices Vary Widely from Region to Region
The real problem is that gasoline prices in some parts of the country are higher than others. In some regions, gas prices are so high as to be a drag on the economy and a possible threat to retail sales.
Some disturbing regional variations on gasoline prices include:
- California has the highest gasoline prices in the nation; the average cost of a gallon of regular in the Golden State is $3.53, according to The LA Times. Gas in California now costs nearly $1 per gallon more than the rest of the nation.
- Gas prices are much lower in some areas. The average gas price in Colorado was $2.45 a gallon, or around 12¢ below the national average. In some places in the state, it was much lower; Colorado Gas Prices reported that one station in Commerce City (a Denver suburb) was selling regular for $2.09 a gallon on May 1, 2015. The highest gas prices in Colorado were in Aspen, where a Shell station was charging $3.75 a gallon.
- The average gas price on the East Coast was $2.52 a gallon or slightly lower than the national average on April 27, 2015, the EIA reported.
- The average gas price on the West Coast was $3.18 a gallon on April 27, 2015, the EIA reported.
- The average gas price on the Gulf Coast was $2.31 a gallon on April 27, 2015, according to the EIA.
- The average gas price in the Midwest was $2.44 a gallon on April 27, 2015, EIA statistics indicate.
- The average gas price in the Rocky Mountain region was $2.48 a gallon on April 27, 2015.
These numbers show us that there is no real average price of gas. It fluctuates greatly and varies greatly from region to region.
What Gas Prices Can Teach Investors
So what can gas prices teach investors and observers of the economy? There are three important lessons that some people do not seem to be absorbing:
- Gas prices are a drag on some regional economies in the country such as that in California. Expect to see even more migration out of the Golden State as working and middle class people see how much lower the cost of living in states like Texas is. Part of that low cost of living is a lower cost of gas. Expect to see gas prices start to hurt home sales and real estate values in California at some point.
- Lower gasoline prices could boost some regional economies such as those in Texas and Colorado.
- Some retailers benefit more from rising gas prices than others. Discounters like Kroger (NYSE: KR), Walmart (NYSE: WMT) and Costco Wholesale (NASDAQ: COST) are in a strong position to benefit from rising gas prices. These retailers offer discounts on gasoline for customers; Kroger’s loyalty card has saved me up to 40¢ a gallon. Such stores profit when gas prices are low because they can offer gas for less than $2 a gallon and when gas prices are high because they can use gas as a loss leader to lure in more customers.
Kroger in particular is in a strong position to profit here because it is now the third largest operator of filling stations in the United States. Kroger operates 1,330 supermarket fuel centers and 725 convenience stores in 37 states. That gives it a strong edge in times of widely fluctuating gasoline prices.
My prediction is that gasoline prices will stay about the same for the next year or so before going up again. Prices will probably go up again because oil production is falling.
A long-term beneficiary of the roller coaster ride gasoline prices have been on will be Elon Musk. The electric cars that his Tesla Motors (NASDAQ: TSLA) markets are sure to be a lot more attractive at a time when gasoline prices can change by more than a dollar in little more than a year.
Expect to see a major boost to the economy this year because of falling gas prices. Yet do not expect see economic recovery in California, where gasoline prices are as high as they were last year.
Disclosure: the operator and writer of this blog owns shares of Kroger.