CAPE CORAL, Fla. -- As a consultant for the convenience-store industry and a fuel veteran, I like to begin the new year reviewing what I expected in the previous year, and what actually happened. It’s a great way to remain humble when asked for my predictions for the coming year.
Last year I predicted that the economy would remain strong, and fuel prices would remain low. In that sense I was correct; however, I also predicted that margins would be squeezed as a result of retailers pricing more aggressively and with less volatility in the cost of fuel. Luckily for the industry, I was off the mark, but in a manner that no one is complaining about.
While we did not see volatility driven by supply fears resulting from the hurricane season, we saw the complete collapse of oil prices resulting from yet another glut of product. My sources indicate that margins were relatively decent at store level during most of the year; however, the glut of supply at year-end that lead to plummeting costs at the rack truly drove margins toward the end of the year. In an industry that has been struggling with flat customer counts, this truly came as a holiday bonus this year.
I recognized last year that industry organizations were beginning to speak openly about potential threats to the existing business model (as opposed to a resistance to believe there could be a threat to the status quo), and predicted that more of them would begin to actually start planning for a future without liquid fuel sales. Apparently NACS also reflected that view, as the beginning of the 2018 NACS show revolved around the topic of disruption and how we need to prepare for it.
The Future
Whether or not you agree with President Donald Trump’s belief that he has influenced gasoline prices, I can certainly weigh in on his Tweeted prediction from Jan. 1, 2019: “Gas prices are low and expected to go down this year. This would be good!”
In short, I do not agree. The price of oil dropped nearly 25% from Jan. 1, 2018, closing out the year at only $45 per barrel (down from a high of $76 per barrel in October). Oil prices may remain low into the beginning of 2019. But in April, over 1 million barrels per day in production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and Russia will start to affect oil supply, as will the United States ending exemptions for importing Iranian oil. The end result is that oil prices can begin rising again, just as the summer switchover and driving season increases consumption.
And while Trump is certainly not perceived as an industry expert, his prediction could be seen as inconsistent with GasBuddy's forecast that gasoline prices will average $2.70 in 2019, which is almost 50 cents higher than today. On the bright side, this is still 3 cents lower than the national average of the course of 2018.
Get Ready
I am cautiously optimistic that at least for 2019, we won’t see great changes in vehicle miles traveled or margins that we’ve experienced the last two years; however, a lack of volatility or an extended period of rising costs will result, of course, in lower margins, and none of us can predict whether that happens.
As always, I offer the admonition that we should all remain laser-focused on the bigger threat ahead: electric-vehicle (EV) autonomous ride-hailing services, which will completely disrupt our industry. While many experts, including my peers at the Fuels Institute, believe that this future is further up the road, there are increasing signs that perhaps the future is sooner than we think. The fact that General Motors is closing plants to focus on these technologies is a chilling reminder that an electric, autonomous ride-hailing future is coming sooner rather than later.
As I always advise my clients, we need to prepare for the possible and likely eventuality. It is no sin to prepare for a future that does not become reality, but it certainly is to be caught unprepared if it does.
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