by John Keller | Dec 8, 2014 | Fuel Price Management, Fuel Pricing Strategy, Industry News, Retail Fuel Margins
There’s a terrific article in the Emporia Gazette, a publication in Emporia, Kansas, about why diesel prices are dramatically lagging the drop of gasoline prices we’ve seen over the past months.
In June, US crude was trading at just over $106 bbl, its peak of the year. Since then, the price of crude has dropped about 35%. Gasoline prices have fallen roughly 24% over that same time period. That’s not unusual, since it always takes time for crude price changes to make their way down the supply chain to the retail channel. What does seem odd is that diesel prices have only fallen about 9%. In some areas, the spread between regular unleaded gasoline and diesel is $0.81 a gallon, in other areas the spread is nearing $1 a gallon.
As the article explains, the reason for this gap can be summarized in five points:
1. The US federal tax on diesel fuel is 6 cents more per gallon than gasoline, so the fixed cost of diesel will always be higher.
2. The US demand for fuel used for traffic is changing. The year over year demand for gasoline in the US has been gradually trending downward, in large part due to increased gas mileage efficiency of fleet cars. But the US demand for diesel this year has been much stronger, in large part due to the increase in truck traffic caused by a stronger US economy.
3. Diesel needs to be considered its own commodity, independent of gasoline, because there is substantial demand for diesel outside of car and truck traffic. More equipment is burning diesel, most notably the equipment that fracks crude out of shale formations, and with the rise in US oil production, that equates to a big deal. Also, it has been a late harvest in the Midwest US, and busy farmers make for busy equipment that demands more diesel. Finally, since heating oil and diesel are essentially the same, the recent cold weather and heavy snow across the US has led to a corresponding increase in demand for home heating oil.
4. US refineries are built to primarily produce gasoline, not diesel. From each barrel of oil, US refineries produce 18 to 21 gallons of gasoline vs. 10 to 12 gallons of diesel fuel. It would take billions of dollars to pay for the significant upgrades needed for refineries to create a higher percentage of diesel.
From a fuel price management perspective, it’s unlikely we’ll see any short term dramatic diesel cost decreases, since diesel demand should hold steady as the US economy continues to grow, winter has set in, and there is no end in sight for fracking. When comparing year over year demand for diesel, you may see a positive volume trend, depending on the customer type at your locations.
by John Keller | Nov 21, 2014 | Fuel Price Management, Fuel Pricing Strategy, Industry News, Retail Fuel Margins
According to an article written by Brian Milne of Schneider Electric and published in Convenience Store Decisions, US refineries are increasing their production after being down for maintenance, bringing the run rate above 90%. That’s a run rate last seen in mid-September.
What does that mean from a fuel price management perspective? The higher run rate will lead to a greater supply of gasoline, gas inventories will increase, wholesale fuel prices will push lower, and ultimately retail fuel prices will continue to decrease leaving open the opportunity for robust fuel margins.
In November, the US Energy Information Administration lowered their predicted average retail fuel price to $2.94 per gallon in 2015, which is 13% lower than their predicted price in October. Likely that will lead to increased demand for fuel, or at least steady demand levels compared to this year.
by John Keller | Nov 18, 2014 | Customer News, Fuel Pricing Strategy, Fuel Pricing Technology, Industry News
In the November 2014 issue of CSP Magazine, Greg Parker explains how the success of Parker’s has allowed the company to achieve his extraordinary goals. You may find the article online here.
Previously, Mr. Parker had written a guest article for CSP magazine’s October 2013 issue, where he outlined what he calls a “Big, Hairy, Audacious Goal” to grow the Parker’s Company from a $500 million company to a multibillion one over the upcoming decade.
The numbers in the article are quite impressive:
- eight stores built in 10 months
- EBITDA (earnings before interest, taxes, depreciation and amortization) has increased 36.8%
- overall gas sales at Parker’s have increased by 33% over last year
- gas sales for stores open at least a year have increased by 5.9% over the previous year
- in-store sales have surged to 28% over last year
The PriceAdvantage team is proud to have Parker’s as a customer and partner. For many years, Parker’s has been an electronic gas price sign customer of Skyline Products, the parent company of PriceAdvantage. In January 2012, Parker’s completed their rollout of PriceAdvantage to all their stores. Besides using Skyline electronic gas price signs, the Parker’s fuel price management solution also includes the PriceAdvantage integration with the NCR Radiant POS and GasBuddy OpenStore. Click here to see a video interview with Jeff Bush, Director of Fuel Management at Parker’s, discuss how he uses PriceAdvantage Optimization.
by John Keller | Nov 7, 2014 | Fuel Price Management, Fuel Pricing Strategy, Industry News, Retail Fuel Margins
The OPIS report today revealed the average retail fuel margin across the US remains higher than this same time last year. The retail fuel margin average stands at $0.275 per gallon, down $0.037 from last week, but still $0.044 per gallon higher than this week in 2013.
Once again the year to date average increased, up $0.002 per gallon to $0.205 . The average for Q4 remains at a robust $0.306 per gallon, the same margin as the six week average.
Earlier this week Saudi Arabia unexpectedly cut their prices for crude sold to the US, but raised their prices for crude sold to other locations including those in Asia. Earlier this week crude was trading below $77 per barrel, but at the time of this writing, it is trading at just under $79 per barrel.
From a fuel price management perspective, indications are that wholesale prices are likely approaching their bottom levels of the year, meaning retail fuel margins will likely continue to decrease slightly as retailers compete for volumes over the remaining weeks of 2014.
by John Keller | Nov 3, 2014 | Fuel Price Management, Fuel Pricing Strategy, Industry News, Retail Fuel Margins
According to the Wall Street Journal, four of the biggest oil companies are seeing lower profit margins and may be inclined to cut production.
These big four include Exxon, Shell, Chevron, and BP. Between the four, they are halting plans to expand, and selling off operations. Why? Because over the past twelve months, they averaged a 26% profit margin on their oil and gas sales, down 9% from ten years ago.
That’s what happens as the global cost of a barrel of crude goes through the steep decline we’ve seen this year. If these big four cut their output, it could result in a win for OPEC, which is betting that their strategy to keep up their output at current prices will apply enough pressure to force others to back down on their output as oil production becomes less profitable.
What does this mean from a fuel price management perspective? It means we may have hit a low point of wholesale prices, and that as retail prices continue to fall as retailers fight for business, margins will shrink as we finish off the year.
by John Keller | Oct 29, 2014 | Fuel Price Management, Fuel Pricing Strategy, Fuel Software, Industry News
A new research study performed by PIRA Energy Group, commissioned by the Fuels Institute, concludes that while global demand for diesel fuel will continue to grow to 2030, the US demand for diesel will peak in 2015 and decrease from 2016 to 2030.
The research study, “An Assessment of the Diesel Fuel Market: Demand, Supply, Trade and Key Drivers”, concludes that US diesel fuel demand will decrease from 4 million barrels per day in mid 2015 to 3.5 million barrels per day in 2030, a decrease of 12.5%.
The demand for diesel fuel in the US light-duty vehicle fleet will triple in size as more diesel vehicles are on the road. But demand will be tempered by increased fuel mileage, hybrids, plug-in hybrids, and electric vehicles.
The demand for diesel fuel in the US heavy-duty vehicle segment will decrease, according to the report. Natural gas and improved fuel mileage will cause the decrease.
What does this mean from a fuel price management perspective? Based on your customer profile at each of your locations, you may see changes in demand for diesel at specific locations, higher in some, lower in others. There may be opportunities for product differentiation in locations where diesel is selling to more vehicles on the street and the competition doesn’t offer that fuel type. As other stores stop selling diesel, there may be opportunities for strong margins in areas where your store provides the only source of diesel. As always, it’s one more area to monitor volume sales and margins gained at individual locations, market segments, and the company as a whole.
