GAITHERSBURG, Md. -- The Oil Price Information Service (OPIS) said it expects that "dozens" of retail gas station chains will be acquired in 2015 by master limited partnerships (MLPs) and "wannabes," powered by high valuations of wholesale and retail gasoline distribution. This will include refiners on the lookout for retail chains to lock up guaranteed demand, according to OPIS in its newly released 2015 Outlook.
The report cites Marathon Petroleum Corp., which has a place now for its growing production with the acquisition of Hess Corp.'s retail network in 2014.
The coming year will also see volatility return for oil and gasoline prices, according to Oil Price Information Service (OPIS) in its newly released 2015 Outlook.
The firm offered several predictions and projections for the coming year, including:
- Supply and demand. While not surpassing a 1970 record for domestic crude-oil production, the United States' output will rise and stay at 1973-era daily output levels, OPIS predicts. On the demand side, cheap oil will continue to stimulate consumption, "that will manifest itself in year-on-year increases for gasoline demand this spring and summer," the report states.
That being said, OPIS said it believes gasoline demand growth is being overhyped by some analysts right now, considering that demographic trends and increasingly tough corporate average fuel economy (CAFE) standards will provide considerable headwinds.
- Price prediction. OPIS is expecting a volatile year for crude prices, and so declined to project an average for West Texas Intermediate (WTI) or Brent, observing that prices could range from less than $40 to above $70 a barrel.
It is projecting a national average price for regular gasoline between $2.349 and $2.449 per gallon, with the lowest prices bookending the usual spring/early summer rally. The average low and high could range from below $2 per gallon to $2.75 per gallon. Assuming that demand averages 9 million barrels per day (BPD) in 2015, that would deliver a $125 billion "discretionary income dividend" to consumers; however, this price projection does not reflect any potential increase in the federal excise gas tax, "and we do suspect that an initiative to raise that levy could gain traction in 2015," the report states.
- Margin call. The past year was possibly the best on record for distributors and retailers, OPIS said, with "sensational" gas margins across the country.
"Rack-to-retail" gross margins for 2014 averaged at 22.3 cents per gallon (CPG) in 2014, compared to 19 CPG in 2013, which some considered the high point for the century. Premium gas sales also rose 1 to 2 percentage points, according to OPIS, which while modest is also meaningful because it delivers an additional 5 to 10 CPG in profit.
Continuing a 21st century trend, the West Coast and New England enjoyed the biggest margins, but even the southeast and southwest surpassed previous years' averages, especially in November and December.
And big-box retailers, despite their aggressive pricing habits, appear to have given themselves a 10-CPG margin from Labor Day through New Year's Eve 2014, according to OPIS.
If gas margins were good, diesel margins were incredible, according to OPIS, with an average rack-to-retail margin of 35 CPG for 2014, with several weeks above 40 CPG.
- Ethanol. OPIS expects the price spread between ethanol and gasoline to "wander through terrible correlations," noting that at different points in 2014 Chicago ethanol futures were at an 83-CPG premium to NYMEX reformulated blendstock for oxygenate blending (RBOB), while at another they were selling at a $1.08-per-gallon discount to RBOB. "Downstream points for ethanol delivery could potentially find huge premiums to downstream gasoline costs in 2015, although we doubt whether winter and spring rail issues will be as challenging as during the 2013-2014 winter," OPIS said.
While sales of E15 will grow in 2015 versus 2014, OPIS believes the increase will be slight and that the 15% ethanol blend will remain a fringe product because of "questionable blending economics" and continuing liability concerns.
- No change. OPIS said it expects the Jones Act, which limits the waterborne distribution of petroleum between U.S. ports to U.S. flagged vessels, to remain in place in 2015. It also believes the ban on crude exports will not be lifted, but the debate will continue.
Click here to get the full report.
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