March Fuel Margins Moderate

After near-record highs in January, margins to decline

Gas Prices

NEW YORK -- While national retail fuel margins are averaging 13% above year-ago levels (through March 3), they will probably moderate against 2013's record margin for the entire month of March, according to a recent research note by Raymond James & Associates.

Margins ranged between 14 and 15 cents per gallon (CPG) in early March 2014, but year over year, they ran around 35% lower, according to the research note. Fuel margins averaged 18.5 CPG in January 2014, or up 39% year over year, and 14.1 CPG in February, which was off 13%, although still close to three-year averages.

The convenience store operators Raymond James tracks--Casey's General Stores, CST Brands Inc., Murphy USA Inc., The Pantry Inc., Susser Holdings Corp. and TravelCenters of America--benefited from January's pricing environment, but experienced year-over-year margin compression in early March. "Ultimately, calendar 1Q fuel margins appear unlikely to exceed year-ago levels, though the margin strength experienced in January will help overcome more difficult March comparisons," the analysts concluded.

Raymond James estimates margins using futures contracts and data from Oil Price Information Services (OPIS).

National retail margins for regular unleaded moderated from their heights in January, although they ended slightly above the three-year average, according to the research note. After hitting near-record January levels of 18.5 CPG, margins for the four weeks ending March 3, 2014, fell sequentially to 14.1 CPG, or 13% below year-ago levels; however, this was 3% above the three-year average. National diesel margins for this same period averaged 16% lower year over year, 6% above the three-year average.

On a regional level, retail gasoline margins across most of the country were below year-ago levels for the four weeks ending March 3, moving sequentially lower from January levels. The greatest drop in the regions included in Raymond James' retailer coverage area was in Texas, where margins fell 26% or around 4.0 CPG year over year to reach 11.2 CPG. In the Southeast, margins were off 20%, or 3.0 CPG, year over year, to settle at 11.7 CPG for the four weeks ending March 3. And in the Midwest, margins were off 21%, or around 3.5 CPG, year over year, to reach 13.2 CPG.

For first-quarter 2014, ending in March, Raymond James is modeling an 11.0-CPG margin for CST Brands, up 38% year over year, and 12.5 CPG for Susser, which is off 25% year over year. The healthy gain for CST reflects a revised pricing strategy that balances margins and volume, which it adopted after its spinoff from Valero in May 2013. Raymond James' quarter-end fuel-margin projection for Murphy USA is 11.0 CPG, or flat year over year. At The Pantry, Raymond James' predicts a March quarter-end margin of 12.5 CPG, and at Casey's General Stores, the firm is modeling April quarter-end margins of 15.5 CPG, which includes an estimated 1.5-CPG benefit from ethanol credits. The firm's first-quarter 2014 estimate for TravelCenters of America is 15.0 CPG, or off 3% year over year.