ROCKVILLE, Md. -- With a critical slice of the nation's refining capacity crippled, jobbers and retailers uncertain about supply and pump prices cresting well above $3 per gallon, an interesting picture is being drawn, but rather than depicting winners and losers, this one shows losers and serious losers. In this case, the serious loser is the unbranded, free-spirited retailerthe cagey independents that shop daily for the best prices to exploit street prices.
It was a biblical restatement of last shall be first, where the cheapest is the highest and [image-nocss] the highest is the cheapest, OPIS Chief Oil Analyst Tom Kloza said during a special 90-minute teleconference called "Katrina: Where Do We Go From Here?"
Or, as explained by OPIS co-founder Ben Brockwell in classic fuel economics, when overall supply is cutand in this case as much as 5% has been yanked from the market with four refineries going offlineit is the noncontract operator that feels the brunt of price trauma and is the first to be cut off altogether.
On the food chain, Brockwell said, a marketer without a supply contracts is at the bottom of that food chain in terms of getting that supply. That is something, I believe, that they're not going to soon forget.
In an OPIS-sponsored teleconference attended by hundreds of fuel jobbers, retailers, analysts and public officials, Kloza and Brockwell offered a glimpse into how the market will respond in the months ahead.
Among other key points:
Supply: Brockwell and Kloza praised suppliers for ensuring stable supply for most of the country despite the adverse conditions and dismissed the notion of widespread price gouging from either the supplier or retailer. Fluctuation: Both described the past week's events as the most volatile they had witnessed in more than 25 years apiece of tracking the oil market. Kloza cited price swings in the spot market of more than $1 in 24 hours on the Gulf Coast. Street Prices: Kloza predicted retail gasoline prices to stay above $3 for at least the next 7 to 10 days and to then gradually fall. Both he and Brockwell were cautiously optimistic that the worse has passed Stressed Infrastructure: Likewise, both expressed curiosity whether sudden spikes at the pump would result in declining consumption. As noted by Brockwell, the nation's current course of increased consumption coupled with near-capacity domestic production has been further exacerbated with the shutdown of four refineries. So that equation is [now] worse, not better, he said. I think it's fair to say the one thing that could change [this trend] is a serious drop in oil demand. But this market remains under stress in terms of supply and demand.Meanwhile, regional reports and two CSP Daily News polls are revealing the realization of retailers' worst fears. In Tuesday's poll, more than half of the 254 respondents said they had run out of fuel at one or more location.
The findings are not surprising as panicked motorists queued up and topped off their tanks last week, sparking severe shortages in what has become one of the nation's top commodities.
This is new territory for all of us, Bill Kent, president of Kent Industries, told the Midland Reporter-Telegram. We have never before had an entire city shut down and eight refineries taken off line. Simply keeping up with price adjustments and supplies is a full-time occupation."
"Right now," he told the newspaper, we're fighting to keep product in our stores. Our competitors' prices are secondary.
Such reaction in a business where mere pennies can decide where a motorist fills up would have been unimaginable less than two weeks ago.
But prices have shredded historic highs so drastically that customers may simply be accepting the fact that, for at least the relative short term, they will have to flex plastic or dig deep in the wallet for a full tank. Consider that last Wednesday, nearly two-thirds of more than 300 respondents answered affirmatively to a CSP Daily News poll question asking whether they were seeing panic fuel buying as fears of $3 per gallon.
Such fears have become reality and the question today is will the situation get any worse for the consumer, retailer and supplier.
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