Posted: February 2, 2010
To address consumer questions about gasoline prices, NACS has developed online resources that explain everything you need to know about the U.S. petroleum industry.
As the national trade association representing the convenience and petroleum retailing industry, which sells approximately 80 percent of all the gasoline purchased in the United States, we developed these resources to help the general public better understand the petroleum industry, especially at the retail level.
Convenience store retailers dislike higher gasoline prices as much as their customers do, since gross margins (or markup) decrease while costs – particularly credit card fees – increase. When wholesale prices go up, prices at the pump typically lag, as retailers cut their markup to remain competitive. The opposite happens when prices fall. Over the course of a year, the typical markup on a gallon of gas is about 14 to 15 cents per gallon. After expenses, retailers make a penny or so in pretax profit per gallon.
These convenience stores also do not benefit from the strong upstream profits announced by the major oil companies. Very few retail fuel outlets are owned by major oil companies. In fact, only two of the five major integrated oil companies are committed to sell fuel at the retail level. In June 2008, ExxonMobil announced the sale of its retail assets – an announcement similar to one made by ConocoPhillips in August 2008 and by BP in 2007. Today, less than 2 percent of all convenience stores selling gasoline are owned by one of the major integrated oil companies. To counter slim profit margins for gasoline sales, these stores seek to drive profits by growing their in-store sales, whether coffee, sandwiches, financial services or cold beverages. Virtually any item in the store can carry a healthier profit margin that a fill-up at the pump.
This is the ninth year that NACS has developed online resources that address gasoline issues. While the circumstances may be different year-to-year, the pattern seen in petroleum markets is eerily similar, and will once again be of concern for consumers and retailers alike in the coming months. The first week of February traditionally marks the beginning of the spring transition to summer-blend fuels for the petroleum industry. Since 2000, gasoline prices have increased, on average, more than 50 cents between the first week in February and the time of the seasonal high price, typically late May. In both 2007 and 2008, gasoline prices jumped more than $1.00 in that period.
In a sense, the petroleum markets are similar to the Bill Murray movie Groundhog Day, in which his character wakes up every day to find that it unfolds, event-by-event, exactly the same as the day he had just experienced. Like the character in Groundhog Day, the petroleum markets experience similar conditions over and over – except on an annual, rather than daily, basis.
It is because of the similarity to the movie Groundhog Day and the traditional start of the spring transition to summer-blend gasoline that NACS has annually launched its online resources – the NACS Gas Price Kit – on February 2, Groundhog Day.
We have tried to incorporate the most current data on the petroleum retailing industry as of late January 2010, and some numbers are just days or weeks old. For NACS-specific data, we have used 2008 numbers (NACS 2009 industry data will not be available until April 2010).
It is difficult, if not impossible, to predict where crude oil or gasoline prices will go. There are simply too many variables that affect the supply and demand of fuel. The goal of this resource kit is to instead look at the underlying conditions and address perceptions and realities in the marketplace.
These resources are designed to facilitate an open discussion about the issues impacting supply – and prices – during the seasonal transition and, through a better understanding of the petroleum markets, help ease the frustrations consumers often experience when prices increase. And most importantly, to help guide discussions on the issue of higher gasoline prices to solutions that can benefit us all.