That muted roar of excitement you hear in the background is the cheering of consumers voicing their thrill about gasoline prices dropping more than $1.60 per gallon since late April.
Why muted? Because retailers are letting out ecstatic shouts of their own as they see fuel margins hit levels seldom seen in the retail petroleum industry.
“On Dec. 19, [retail] margin was an extraordinary 33.87 cents per gallon,” reported Trilby Lundberg, president of the Lundberg Survey.
That’s good reason for the industry to roar with excitement. It’s the result of a 100-day drop in crude-oil prices, wholesale fuel prices and prices at the pump.
A look at the data (see graph below) illustrates crude oil’s dramatic price drop beginning in mid-June, when Brent crude-oil spot prices topped out for the year at $115.19 a barrel. By the end of 2014, prices were nearly half that and falling below $50 per barrel in early January.
Declining crude oil and wholesale gasoline prices helped CST Brands Inc. achieve 25-cents-per-gallon gross profit in the United States for third-quarter 2014 compared to 16 cents in third-quarter 2013.
“Typically, the crude prices on the world market fall faster than the prices on the street do, so when you have falling crude prices, you tend to catch a little bit more [margin] at the pump for a little bit longer,” said Kim Lubel, president and CEO of San Antonio-based CST Brands, to CNBC in November.
Compare that to 2008, when gasoline margins hit an average of 19.9 CPG, according to the NACS State of the Industry Report of 2008 Data. Much of that margin came from the increase in gasoline prices—and subsequent drop—following Hurricane Ike, among other storms that came to shore that summer.
So the industry can expect tepid excitement over these likely record-high fuel margins during this year’s State of the Industry Summit. Why tepid? Because in a product category that’s watched like hawks by consumers and the media, crowing about the record profits you’re making on gasoline just isn’t kosher.
“What occurred in 2014 was nothing short of a paradigm shift in favor of North American energy producers and consumers, at the expense of OPEC and the Middle East,” said Gregg Laskoski, senior petroleum analyst for GasBuddy.com.
But perhaps the best news—at least for consumers—is that fuel prices are expected to remain at relatively low levels in 2015. Some pundits have spun that as an effort by OPEC to stymie the successful U.S. fracking craze.
During a Thanksgiving Day 2014 OPEC summit, the crude-oil conglomerate surprisingly opted not to decrease production. And some say it was an international political move: If the expensive exploration/refining phase of the oil industry isn’t paying off, it becomes an unviable business, theoretically cutting U.S. explorers off at the knees.
Economist Walter Zimmermann, however, says the crude-oil and fuel-price decline is part of what he calls a “deflationary vortex.”
“ ‘OPEC’ and ‘market share’ are merely the latest smoke-screen buzz words that allow central banks to avoid uttering the dreaded word ‘deflation,’ ” Zimmermann wrote in an exclusive CSP Daily News column. “For gasoline to hold and rebound from any level will likely require a correction lower in the U.S. dollar.”
Others gasoline-price watchers pretty much agreed. In its 2015 Fuel Price Outlook, GasBuddy.com calls for a yearly national average of $2.64 per gallon, a far cry from 2014’s yearly national average of $3.34 per gallon. In addition, GasBuddy’s forecast sees just one month in which the national average may breach $3 per gallon: May. January will likely see the lowest monthly average of the year.
“While we continue making comparisons of today’s gas prices to the Great Recession, the biggest factor this time around is the absence of such an economic slowdown, making the drop in gasoline prices exponentially better,” said Patrick DeHaan, senior petroleum analyst for GasBuddy.com.
Retailer Reports
Average fuel gross margins as reported by public c-store companies in most recent earnings reports:
Alimentation Couche-Tard
24.17 cents per gallon in the United States for August through October
Casey’s General Stores
19.5 cents per gallon for the second quarter ending Oct. 31, 2014
CST Brands
25 cents per gallon in third-quarter 2014, vs. 16 cents in third-quarter 2013
The Pantry
13.3 cents per gallon during the quarter ending Sept. 25, 2014, from 10.7 cents in the prior-year quarter
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