Marketers who retail gasoline and diesel just concluded their best first half of any year in the modern era, according to data compiled by Oil Price Information Service (OPIS). The prosperous six months may be a key catalyst for even more aggressive M&A targeting convenience real estate, where public and private companies have been especially active in the last five years.
Looking merely at street prices gives no hint of the spectacular performance. Retail unleaded regular averaged $2.585 gal from January-through-June, down modestly from 2018 ($2.695 gal) but much higher than the $2.045 gal recorded in 1H 2016. (Incredibly, the first half of 2014 saw a retail average of $3.519 gal).
But a look at wholesale costs for the 130,000+ stations tracked by OPIS finds that the difference between what retailers paid for fuel and what it fetched at the pump had a record run. Gross margins averaged 22.6cts gal in 1H 2019, up from 20.7cts gal in the same period of 2018.
In fact, average gasoline margins have doubled since the challenging first half of 2009 which reflected some of the last months of the Great Recession. Margins were measured at just 10.7cts gal in that period.
Some observations on millions of daily data points tracked by OPIS:
A strong start to the year often augers well for the entire year. Historical analysis suggests that July through December fuel margins have a typical upside of 25% versus the first half. The only exception to this rule of thumb came in 2010 when margins saw second half attrition of about 0.5cts gal.
Gasoline demand was strong enough in 1H2019 to reward most marketers, but the trend is clearly flat. OPIS suspects that when final demand numbers are rendered for 2019, annual average consumption will be about 9.3-million b/d, or just over 390-million gallons per day.
New-to-industry sites and Big Box stores account for uplift, but the typical same-store retail site saw a 1.9% drop in first half 2019 volume.
Every region surveyed by OPIS DemandPro featured a decline, but the Southeast saw same store fuel volumes falter by 2.6%.
Western US markets routinely have the highest pump prices, but they also afford the best returns for retailers. First half gasoline margins in western states (Pacific Coast and Rocky Mountain) measured 40.5cts gal, up from 29.8cts gal in 1H2018.
California may be viewed as a hostile environment for fossil fuel, but it is anything but hostile with regards to profits. Eight of the US Metropolitan Statistical Areas (MSAs) with the highest profit margins were in the Golden State.
Shell retained status as the US leader in market share with 12.47% of sites, followed by Exxon, Chevron, Speedway, BP, and Mobil. But none of the majors had the sales clout of independent chain Wawa. That retailer has a market share that was 5.4 times its outlet share. This scoring metric, known in the industry as market efficiency, saw QuikTrip grab second place, followed by fellow independents Sheetz, Racetrac, and QuickChek.
Costco has no peer when it comes to an aggressive fuel offering to consumers. The Big Box boosted inside and outside traffic thanks to a regular gas price that averaged 23.49cts gal below direct competitors. ARCO was a distant second, pricing its gasoline about 20cts gal below competitors.
A combination of mostly western geography and strong brand recognition enabled Chevron to price its regular gas more than 9cts gal above competitors.
The toughest place to be a fuel retailer? A simple glance at the data suggests Arizona brings the biggest challenge, but OPIS is aware of widespread wholesale discounting in that state. Various MSAs in Texas have the most intense competition.
The highest priced MSA in the country was San Luis Obispo where unleaded averaged $3.798 gal in 1H2019. But marketers there nabbed second place in terms of lucrative margins, fetching 63.7cts gal above wholesale costs.
The lowest priced MSA was Hot Springs, Arkansas where 1H2019 saw regular average just $2.40 gal in the period. Margins were challenging in that territory, and at 7.8cts gal were about one-third of the national standard.
OPIS calculates a total of 1827 stations saw a brand change in the first half of 2019. Chevron saw about 116 new flags go up; Marathon added 126; and Speedway expanded by 262. The return of the Amoco flag brought 44 stations on board.
Net losers of brand included CITGO (-178); Shell (-163); Phillips (-97); and Valero (-90).
A multi-year trend toward more unbranded locations got off to a strong 2019 start. A total of 611 additional stations put up unbranded flags, while 467 aligned with a brand. On a net basis, the unbranded segment saw growth of about 144 sites.
Source: Oil Price Information Service, OPIS RetailSuite