I’ve been doing some work on the Cub so I’ve been driving back and forth to the airport a couple of times a day. Inbound this morning, I was about to duck into a gas station and had second thoughts. The posted price was $2.43. Sure enough, when I drove home-five hours later-it was $2.38. I tanked up.
If you’ve been waiting for the commensurate drop in avgas prices, you may or may not have seen it. We saw it just this week. At Venice, one of the vendors just posted $3.98, down from $5.40 in the spring. That’s a 26 percent drop and actually a little higher percentage decline than the national price of autogas during the same period, at least at our airport. But some airports have barely dropped their prices at all. In its survey of 3604 FBOs, AirNav reports a national avgas average price of $5.66, just two cents less than it was a year ago. I’d look for that to edge downward during the next month, although how much is impossible to say.
So what’s going on in the avgas market, exactly? Knowing full well I’ll never get answers to this question, I periodically phone a few sources just to provide them with the amusement of pondering the imponderable. No one really has a grasp of market trends in avgas and those that might-the major refiners-always demur, insisting they never comment on prices. (Unless it’s deemed to be in their interest, in which case they become giddily voluble.)
Although the daily press stories suggest the precipitous gasoline price drop we’re seeing now is unprecedented, it hardly is that. As recently as 2008, following the financial crash, oil bottomed out at $32 (from $146) and the national average price of regular floated below $2. The current slide started in August, when indexed oil was at $100.66. On Tuesday, it was trading around $55.
Not that avgas is necessarily tied to any of this. In general aviation, we live in the Village of the Damned, where normal laws of supply and demand don’t apply. When demand for airplanes tanks, the manufacturers raise the prices. While car gas prices plummet, avgas remains-at least until recently-steadfastly static. There are seemingly plausible reasons for this and the most credible one is simply lack of competition. There aren’t that many avgas refiners-about a half dozen now-and many avgas vendors don’t have on-field competition. At your corner service station this week, the price posters are wearing their legs out climbing the signs to shuffle the numbers. It reminds me of the old time gas-price wars when I was a kid in Texas.
Crude oil is less of major price constituent of avgas than is so with mogas. Avgas has expensive blend components that mogas doesn’t and it’s unclear-at least to me-how the prices of these components track against crude prices. They live in their own commodity orbits and demand for aromatics could be strong when gasoline demand is weak and vice versa. In broad economic terms, avgas isn’t so much a fuel as a specialty chemical, given the low and declining volumes. Plus, avgas is priced on market-will-bear rules sometimes tagged to the rack price of premium mogas plus an additional margin. And it’s quite a high margin for refineries. It has far less to do with the cost of production than does mogas.
And you don’t see the fuel truck driver trudging out into the snow to change the price three times a day because the FBO may have bought that load in September at a substantially higher wholesale price than he’ll pay this week. Many FBOs don’t make much margin anyway and lowering it further would be irrational. Given the sluggish response to competition and price signals, if a refiner can get away with higher prices on lower crude costs, what do you think they’re going to do?
To me, the most interesting thing about this price tumble-the latest of a long, cyclic history of such things-is where it could go and why. The analytics I’ve read generally conclude that the current glut of oil is at least partially the result of tight oil production in the U.S.-in the Bakken and Eagle Ford fields, mainly, with the Alberta tar sands doing their share, too. But because the tight fields have to be fracked, they have high production costs. The break even is said to be about $60 and to keep production alive, drilling is constant. So one theory is that Saudi Arabia, which has among the cheapest production costs in the world, is sustaining its production to drive the pesky North Dakota and Texas upstarts out of the market, after which it will raise prices. Of course, higher prices will bring those fields back into play, which is the way it has always worked. Saudi once controlled the market with all but an unchallenged iron fist. That may no longer be true. But what is obviously true is that the people who said there would never again be oil surpluses were as wrong as the people who though $140 was the new norm.
Regardless of how this interesting market dynamic plays out, the more salient question for GA may be this: what the hell difference will it really make? Will a 25 or even 30 percent retreat in the price of avgas ignite more activity? Or will owners and pilots wait around so long to see if it’s real that the prices will come roaring back next spring or summer? In a way, this is Redbird’s quirky fuel fest of last year writ large.
I’m betting there won’t be a spike in activity, at least one we’ll notice, because I think just as the lack of competition and decline in the GA market distorts price signals for manufacturers, so does it do the same for owners. I think lack of flight activity is only peripherally related to both real and perceived fuel costs. Remember, avgas prices adjusted for inflation aren’t any higher than they were in the 1980s. Redbird thought the state of aircraft maintenance was a bigger factor than fuel prices. I think there are other forces and barriers at work, too.
But for the time being, I’m not complaining. At current prices, I can fly the Cub for $8 less an hour. Whoop-dee-do.