2017 SOI: Fuel Business Sputters

Low gas prices feed demand, but sales and margins remain stagnant

Billy Milam believes in a simple equation: More gallons equal more inside sales.

The convenience channel increased fuel sales 2.6% in 2016 vs. the year prior, averaging 149,917 gallons per store per month, which coincided with inside sales hitting a record $233 billion, up 3.2% from the year before.

“Fuel prices are lower than we’ve seen,” said Milam, president of RaceTrac Petroleum, Atlanta. “Transactions were [up] inside and outside. More gallons, more inside sales.”

But not all numbers aligned on the positive side. Pool margins fell slightly by 0.1% and sales dropped 9.2%. The fuel-margin outlook for the start of 2017 is also troublesome, according to Tom Kloza, global head of energy analysis for Oil Price Information Service (OPIS), Gaithersburg, Md. (See more from Kloza’s session on p. 57.)

“If you’re saying 2016 was pretty good [but] 2017 sucks, you probably have some ammunition on your side,” Kloza said. “The good thing is I think it will get better; this is not a long-term trend.”

Falling fuel sales led to a 4.3% drop in overall industry sales, which combines fuel and inside sales. Total sales for 2016 settled at $574.8 billion.

Putting a quick spin on those numbers, Milam said, “We could be the country of NACS, since our GDP (gross domestic product) makes us 21st in the world.”

One stat outshined any fuel news: the $10.2 billion in profit that the c-store channel took in last year, slightly down from 2015 at $10.6 billion. To put the numbers in perspective, just three years earlier, profits of just less than $7 billion were record-breaking.

The big question, Milam said, was whether the past three years were outliers or a new normal. With that backdrop, he explored NACS’ outlook for the forecourt, a perspective of equal parts stability and doubt.

Demand Amid Uncertainty Examining fuel demand in the near and long term is a study in inconsistencies, with signs of stability alongside the ominous.

The assumed trend line for fuel demand in the long term has been one of incremental decline. More fuel-efficient cars, population shifts to urban centers where people drive less, and millennials preferring not to own cars or even receive their driver’s licenses are all pushing down consumption, Milam said.

Yet in the short term, gasoline consumption has been on the rise since 2013 thanks to low prices and is set to surpass levels set back in 2008, Milam said, citing Energy Information Administration (EIA) statistics. And vehicle-miles traveled, a statistic tracked by the Federal Highway Administration (FHA), has also been steadily rising since 2013 and parallels the FHA’s own U.S. gasoline-consumption numbers.

That said, global numbers show gasoline demand peaking, with numbers for 2040 mirroring those set in 2015, according to Paris-based International Energy Agency.

Indicators from the auto industry likewise paint a picture of varying possibilities for the future of fuel consumption. Car sales figures seem to bolster a more upbeat forecast, as low gas prices have encouraged people to buy bigger, gas-guzzling vehicles.

Light-duty truck sales significantly outpaced that of regular cars in 2016, Milam said, with pickups and crossovers showing sales increases of 7.2% as cars saw an 8.1% drop in sales in 2016. Last year’s top-selling vehicle was the Ford F Series truck.

Still, that Ford truck today has much better mileage than the same model did 10 years ago. The combined mileage efficiency of a 2017 Ford F-150 is 50% greater than the same model vehicle sold in 2008.

At the same time, the Prius is falling in sales just as Tesla’s electric fleet is picking up. The mixed messages cast a shroud of uncertainty on any forecast in fuel demand.

“Vehicle-miles traveled … are hitting records today,” said Milam. “But the difference today, if you go back three years … there are more efficient vehicles, electric cars and hybrids.”

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