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Fuel Prices: Causes and Consequences

Shale has been a game changer, speakers say.
October 20, 2017

​CHICAGO –​ Although the recent low price of gasoline has greatly benefited c-stores, retailers remain concerned that prices may rise again soon. At the NACS Show, the education session Fuel Prices: Causes and Consequences featured short presentations by three speakers, followed by a lively discussion with the audience moderated by Fuels Institute Executive Director John Eichberger. Presenters laid out how retailers can better anticipate future changes and the effect on customer service.

David Holt, president of Consumer Energy Alliance, said the United States has become a net energy exporter and trades with countries such as Canada to obtain different grades of oil. Holt said the U.S. could even produce more, but we are limited by demand. Denton Cinquegrana, chief oil analyst for OPIS, agreed, adding that shale has been a game changer: the United States is exporting two million barrels per day and has the capacity to pick up any global production shortages.

Ron Sabia, former president of Gulf Oil, noted that today’s supply conditions indicate relative retail price stability. He said that gasoline demand will remain stable so long as consumer demand does not decrease—but only up until the price surpasses $3.50 per gallon, a highly unlikely possibility based on today’s fundamentals.

During an interaction with the audience, Holt said it “is an absolute fact” that electric vehicles will not be a threat in 10 years; oil producers have recapitalized to reduce the cost of production per barrel, making oil as low as $40 a barrel profitable. When asked to comment on the fact that automakers are increasingly producing electric vehicles, Sabia noted that this is being driven by China, which is demanding electrification. Holt saw this as a minor issue in the United States being driven by small groups trying to force social change. Other opinions were that there is a challenge and cost associated with replacing all of today’s internal combustion engines; companies such as Tesla are having a problem meeting production goals. In addition, increasing precious metal scarcity for battery production will cause declining production costs to hit a wall.

Much of the presentation was perceived favorably by the audience, who obviously have a large stake in the continuation of today’s retail fuel model. When asked what one thing the audience should take away, Cinquegrana said that we would remain with relatively strong gasoline demand and tame stable prices into the foreseeable future. Holt agreed, stating he expected “predictable hydrocarbon demand.” Sabia cautioned that while he felt the same way, retailers should remain nimble, as disruptive technologies, especially autonomous vehicles, could be a complete game changer. Eichberger closed the session saying retailers should stay rational, avoid hype and sensationalism, and use unbiased sources to make informative decisions.

Norman Turiano is a former Wawa executive and principal of Turiano Strategic Consulting. You can reach him at TSC.USA@comcast.net.​