Finding themselves in a perfect confluence of falling crude prices and robust fuel margins last fall, c-store and petroleum retailers enjoyed a pretax profit jump of 46.5%, after having seen only single-digit growth since the onset of the recession in 2008.
Fuel sales did go down, but regular-unleaded margins jumped 17.4% in 2014 vs. 2013, after at least three years of negligible growth.
Tracking the pricing trend, Billy Milam, president of RaceTrac Petroleum, Atlanta, and member of the NACS research committee, said retailers sold gasoline to consumers at peak prices in June and July of last year. That’s when the drop began.
“Gasoline declined over $1 [a gallon] in six months,” Milam told attendees.
Retail prices responded to a steady fall in crude starting in the second half of 2014. Midsummer highs above $100 per barrel dropped below $70 by the end of the year—levels not seen since May 2010. In that six-month period, Brent crude had dropped 37% and West Texas Intermediate was down 34%, according to Forbes magazine. This past spring, crude was trading in the high-$50 range.
New production from the United States spurred the oversupply, which collided with several years of weak to declining demand. Milam outlined the effect of lower gas prices:
- Savings per household of $700. The Energy Information Administration says consumers will save about $1 per gallon in gasoline this year, with prices to average $2.40 in 2015 vs. $3.36 per gallon last year. Americans will spend $1,817 in gas in 2015 vs. $2,513 last year, the lowest since 2004.
- Automakers and manufacturing will win, because people will probably drive more and buy cars that may be less fuel-efficient.
- Oil-producing countries, including the energy sector in the United States, will lose, with billions of dollars evaporating as prices maintain historic lows.
- Federal economic standards, market shifts and consumer behavior are wild cards.
However, many trends support low gas prices in the foreseeable future. The number of miles Americans drive has stagnated, Milam said. The U.S. Department of Transportation shows steady increases since the 1970s through to about January 2007, when miles driven began to slow. Those trend lines appear to have stabilized, with 2015 showing a smaller lag this spring as in previous years, Milam said.
Average retail gas prices did drop in 2014 over 2013—down to $3.36 a gallon from $3.45. It follows a pattern seen at the beginning of the recession in 2008, but margins increased just over 6 cents, going from 18.7 cents a gallon to 25 cents. The year prior, margins increased only 1.3 cents; the year before, margins fell about 0.7 cents.
Fuel sales were down 1.8% on a same-store basis, going from $486,314 in 2013 to $477,390 in 2014, but gallons sold rose 2.3%, from 140,586 in 2013 to 143,780 last year, the preliminary SOI numbers show.
As an aside, Milam said all the talk about gasoline margins outshines the industry’s gains in inside sales. “We’ve done a fantastic job of growing inside sales, especially foodservice,” he said.
Despite 2014’s record year, Milam said, gasoline margins had been healthy since 2011. Even though 2008 marked the beginning of the recession, it was a “fantastic year” for margins, at 18.1 cents. They dipped to 13.1 cents in 2009, but by 2011, they recovered to 18.5 cents, with 18.4 cents recorded in 2012 and 19 cents in 2013.
“We have to keep in mind our direct-store operating costs, so we’re not staying fat and happy,” Milam said, “With fuel and diesel, the trend is up.”
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