Retail fuel margins dropped $0.03 per gallon this week to $0.161 per gallon, according to the weekly OPIS report. That is the second consecutive retail fuel margin drop in two weeks. Retail fuel margins are now at September 21 levels.
From a fuel price management perspective, two consecutive weeks of retail fuel margin drops should get the attention of any fuel manager, since there are only 11 more weeks in the year to maximize fuels volume and margin.
Analyst Peter Sklar of BMO Capital Markets has written in a report that Couche-Tard would only be able to acquire the Valero retail business if Valero decided to split the retail business into a set of smaller, regional units. The report estimates Valero’s entire 1030 store retail network is worth between $3.5 billion and $4 billion, which is in line with the $3.5 billion estimate reported by Reuters. Sklar reported that Couche-Tard would not be able to raise enough new debt to acquire the entire network at that price.
Of course, it is still unknown if Valero will sell off their retail operations at all, given the tax advantages to shareholders of spinning off the retail unit vs. selling it.
That’s exactly what Statoil, Exxon, and Royal Dutch Shell have done over the past five years. Couche-Tard is the company who ultimately acquired the Statoil retail stores, and who now operates 3585 stores.
In their third quarter 2012 investor news letter, hedge fund manager Third Point, LLC urged Murphy Oil to spin off their retail fuel business. In the letter, Third Point says spinning off the retail fuel business would result in a share price increase of about 60%.
In the letter, Third Point used Alimentation Couche-Tard, Casey’s General Stores, and Susser Holdings as a reference to suggest the Murphy 1100 store retail fuel business would be worth $2.3 billion to $2.8 billion if it were a standalone public company.
This makes for an interesting comparison to the recent Valero announcement of a pending course of action for their retail fuel business, including a possible spin off. Valero has a 1027 store network comparable in size to Murphy. Reuters and others have estimated the value of a Valero spin off to be $3.5 billion. There have been some reports that Valero is looking to sell their retail units, but Valero sees < ahref="https://www.priceadvantage.com/blog/2012/10/01/297-fuel-price-management-blog-valero-sees-advantages-to-spinning-off-their-retail-fuel-division-" target="_blank">advantages to a spin off vs. a sale.
The Third Point letter may be found here.
Retail fuel margins dropped $0.053 per gallon this week to $0.191 per gallon, according to the weekly OPIS report. That is a reversal of the trend over the past two weeks when retail fuel margins increased $0.10 since September 14. Retail fuel margins are now just under $0.05 higher than one month ago.
This is the season when retail fuel prices typically fall, allowing c-stores to make up for lost fuel margins earlier in the year. So from a fuel price management perspective, now is the time to keep a close watch on the volume and retail fuel margin trade-off to make the most of the remaining weeks of the year.
Gasoline wholesale prices in the Los Angeles area have gone up $0.70 per gallon this week, reaching wholesale fuel prices not seen since November 2007. Sources blame the Exxon Torrance refinery loss of power on Monday, as well as Chevron’s Kettleman-Los Medanos pipeline which was shut down Monday due to the detection of elevated levels of organic chloride in the oil. Maintenance work at the Phillips 66 plants in Rodeo and Arroyo Grande further reduces California state supplies.
Some c-stores are choosing to sell premium fuel at regular unleaded prices, or to shut down pumps altogether, rather than buy at these inflated costs or to sell at margins that aren’t worth it.
All this speaks to the ongoing volatility of the retail fuels market, and the ever increasing need for the robust features included in our PriceAdvantage fuel pricing software. PriceAdvantage makes it easier to navigate these rough market conditions in multiple ways: