Oil Watchdog

4-21-08 by dugan

I imagine a fair number of drivers think the guy at the corner gas station is raking it in, with the price at the pump getting near–or beyond–$4.00 a gallon. But it ain’t so. The Oil Express newsletter (big subscription barrier, so no link), which is aimed at fuel retailers, notes that the percentage of the sale price kept by gas station operators is down, not up:

 "When petroleum distributors and retailers talk about profit crunches,
they often recollect 2002 as the worst of times, at least for the last fifteen
years. But 2008 has brought the worst circumstances in a generation,
thanks to relentless advances in wholesale costs, flat to lower sales, and a
cash flow squeeze that puts the most capable credit managers on a
company’s hot seat.
"At presstime, year-to-date gross rack-to-retail margins for unleaded
regular just slipped below 4% of the total sales price. In contrast, the
“poor” 2002 year delivered an average wholesale margin of 7.2%, and
the twelve-month average margin in 2007 was 5.0%. Taking into consideration
higher overhead costs, and a larger percentage of gross margin
eaten up by credit card fees, the first 105 days of 2008 appear to have no
misery equal."

Yes, 4% of the price of a gallong of gasoline that costs $4.00 is actually more than 7.2% in 2002, when the pump price was $1.20 a gallon. But credit card costs are also higher by percentage. So it’s not the guy actually taking your money who’s getting filthy rich. It’s the oil companies themselves, and we’ll know just how rich this week, when the big-5 oil companies report 1st quarter profits.

Another point made in Oil Express is that the supply and demand situation has barely changed since 2002. The explanation is couched in oil industry lingo, but we get the drift:

"Remarkably, the U.S. fundamentals for gasoline supply don’t show a
huge departure when compared to six years ago. In 2002, EIA measured
gasoline demand through mid-April at 8.467 million b/d. In 2008, the
number is 9.049 million b/d, and many observers feel that number is
probably an overstatement.

"In 2002, gasoline inventories in mid-April stood at 210.6 million bbl.
Last week’s EIA stats recorded 215.8 million bbl of motor fuel. On a
days’ supply basis, the 2002 number added up to 24.7 days, compared
to this year’s 23.5 days. But there was little ethanol in the 2002 numbers,
and when those inventories are counted, there may be more of a supply
cushion this year."

In any case, there’s no point in yelling at the guy in the little convenience store. Too bad we can’t conveniently yell at the CEOs, though.