OAK BROOK, Ill. -- Drivers aren't the only people happy with the recent drop in fuel prices; for the short term, many in the supply chain are enjoying margins as high as 48 cents.
According to OPIS Retail Fuel Watch, Rickville, Md., for the week ending Sep. 18, 16 states averaged margins above 33.5 cents, while 17 boasted above 25.2. But not all the news was good; states that are seeing below the more typical 12 cents per gallon were in the Midwest, such as Missouri (10.8), Michigan (10.7) and the country's lowest, Ohio (8.2).
Gasoline and diesel always follow crude prices up and they always follow crude prices down, and there's usually some kind of lag of two to four weeks between the two, Dan Gilligan, president of the Petroleum Marketers Association of America, told CSP Daily News. Marketers and retailers usually lose margin as crude prices go up and they gain margin as crude prices go down. The past trends are playing out exactly as they should.
Prices are generally falling everywhere across the country. Some places they're falling faster than others because of various reasons. Sometimes those rack-to-retail margins are a little bit off because they're assuming everybody's buying at a particular rack or a particular region. Some people have futures-market contracts that they have agreed to buy 30 days out, and some marketers are paying a higher price, so you may see prices not fall as quickly.
Simply, crude-oil prices dropped faster than wholesalers and retailers could react, and the curb-side prices dropped much slower. According to the Energy Information Administration, the price of crude oil in the U.S. dropped more than $12 between August 11 and September 8.
Bryant Gimlin, energy risk manager for Gray Oil, a wholesaler in Fort Lupton, Colo. (where the average margin is a healthy 38.7 cents), said it's been nice while it's lasted, because the good times are already slipping away. The national average margin was 29.7 cents, a drop from 32.6 the week before.
The wholesale prices dropped down and they went down fast and furious, Gimlin told CSP Daily News. I think there's a little bit of a fear factor involved because in the past anytime the price has gone down like that, it's turned around and went right back up. So I think they're kind of hedging their bets.
Regional factors can't be discounted, of course. Gimlin said in addition to street prices catching up to rack prices, the Rocky Mountain area is expecting tight supplies next month because of downtime for upgrades related to ultra-low-sulfur diesel (ULSD) at the Suncor refinery in Commerce City, Colo.
We're in the process now of seeing retail prices adjust to the wholesaler, but it's just kind of doing it in a guarded fashion, Gimlin said.
On the other end of the margin spectrum, Dave Hogan, COO of Certified Oil Co., Columbus, Ohio, said he's at a loss for why his state doesn't share the same margins as eastern neighbors Pennsylvania (32.4 cents) or West Virginia (25.4 cents). To the west, Indiana is at 12.8 cents, and to the south, Kentucky is at 15.7 cents. Illinois (29.6 cents) is an island of profit surrounded by sub-25.2 states.
We're a follower, said Hogan, whose company runs more than 90 c-stores with gas (Sunoco, Marathon, CITGO, negotiating with Valero) and a number of gas stations without c-stores throughout West Virginia, Ohio and Kentucky. Major oil companies lead the market and it's just supply and demand and competition. Why it would be that much different, I don't know. I saw 35-, 40-cent margins that's insanity. We have never had margins like that, even on our best day. Years ago, 15, 14 cents, but when you start talking margins like 40 cents, that's unbelievable to us. That's four months worth to us. I don't see any change between now and the end of the year. The Ohio market has been very tight, very flat, very competitive, and I don't see any change in that.
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