Christmas in October

Lower prices provide an opportunity to save face after tough financial year

Steve Holtz, Editor in Chief, CSP Daily News

CAMARILLO, Calif. -- Call it the sweet spot, Christmas in October or, for the sake of the World Series, the big inning, but as consumers revel in lower—and now deemed acceptable—gasoline prices, retailers are seeing some of the best gasoline margins since post Hurricane Katrina. Where retailers were pleased to see 10- to 12-cent margins a month or two ago, margins as high as 40 or 50 cents are now being reported.

“On specific dates recently, retail margin has been very high, but only for fleeting moments,” Trilby Lundberg of The Lundberg Survey, Camarillo, Calif., [image-nocss] told CSP Daily News. “[That] does not mean the retail gasoline sector is flush with profit. Margin fluctuates rapidly.”

For much of this year, gasoline retailers were hard pressed to make a profit because, according to a Wall Street Journal story. From mid-February to mid-July, gross margins averaged about 10 cents a gallon, according to data compiled by Oil Price Information Service together with AAA and Wright Express, a firm that provides payment-processing services. From that, retailers had to subtract credit-card fees, which were about 12 cents a gallon when gas was at $4, and operating costs.

In recent days, gross margins have been closer to 40 cents a gallon, the Journal reported. Lundberg 's data, pulled from a survey of approximately 7,000 U.S. gas stations, shows regular-grade margins averaging 34.6 cents per gallon (weighted, all three grades combined, it was 39.88 cents gallon) on Oct. 10.

“On that date, margins were wider than 50 cents per gallon in nine states, and 40 cents per gallon or above in 19 states,” Lundberg said.“But averages do not tell the story of an individual station's economic condition. While gasoline retailers welcome the plunging prices, the dip isn 't yet prompting drivers to fuel up and hit the highways.”

Gas prices have dropped by almost 90 cents at the pump the past month to a U.S. average of $2.858 for a regular gallon on Wednesday, according to auto group AAA.

Though demand has edged up a bit the past two weeks, it remains down 3.3%, compared with year-ago levels, according to weekly data from the federal Energy Information Agency and as reported yesterday in CSP Daily News.

"It doesn't look to me like demand is rushing back," Tom Robinson, president of Robinson Oil Corp., an independent gas retailer based in San Jose, Calif., told the Wall Street Journal.

The poor economy and fears that it could worsen are keeping consumers in a fuel-conservation mode. It will also take time for drivers to recover from the shock of $4-a-gallon gas, said Paul A. Weissgarber, an energy expert at consulting firm A.T. Kearney.

Still, cheaper gas is easing the pressure on gasoline retailers, who couldn't increase their prices as fast as suppliers did. With prices coming down, the lag works in their favor. It now costs retailers less to buy a tanker-load of gas, which they say is especially welcome at a time when it is hard to borrow money.

Credit-card fees, a major expense for retailers, also are lower now that gas is cheaper.

Depending on how long the lower prices last, retailers could use this period to pull an otherwise difficult financial year out of the toilet.

Lundberg adds a word of caution, however: “Those who point to very high margins on a specific date in a market may add insult to injury as attorneys general and other tinkerers with market forces hunt for ‘price gougers. ' ”

Steve Holtz, CSP/Winsight By Steve Holtz, Editor in Chief, CSP Daily News
View More Articles By Steve Holtz