Between the Margins

NACS explains why the more things change, the more they stay the same, when it comes to the annual cycle of fuel pricing.

March 27, 2015

NACS Magazine recently introduced a new column, “In Context,” authored by NACS Vice President of Strategic Initiatives Jeff Lenard. Each month, Jeff’s column will share the NACS perspective on some of the “big picture” issues facing our industry, and what NACS is doing to address those issues — both within the industry and to the larger audience of customers and potential customers. Jeff can be reached at jlenard@nacsonline.com or (703) 518-4272.

The monthly statistics published by the U.S. Energy Information Administration confirm what we already knew: The end of 2014 was great for gas margins — and I mean great! The Distribution & Marketing component of the price of gas in December 2014 was a record-setting 25.5%.

Wait, why am I writing that? What if some elected official sees this column and calls for a congressional hearing to grill our industry over profiteering?

I suppose it could happen, but it’s never an effective strategy to worry about “what ifs” to hide something.

Quite the opposite. Transparency is good, especially for an industry that is so important to the routine of everyday Americans. That’s why for the past 14 years, NACS has published its Retail Fuels Report to explain the dynamics of the fuels market, whether in good times or in bad times. Convenience stores sell 80% of the fuel purchased in the country: We can tell this story, and it’s important that we do.

The report (found at nacsonline.com/gasprices) answers almost every question we receive about fueling. Sure, it’s easy to explain the composition of the fueling industry or summer-blend fuels requirements. But what about why gas is priced at 9/10ths of a penny? We explain that and even why Canada isn’t priced that way. And we sprinkle in enough pop culture references to make it interesting — dig deep enough and both Sammy Hagar and Colonel Sanders are namechecked in the “history of fueling” section.

NACS publishes the Retail Fuels Report every February 2, right before the fuels industry begins its transition to summer-blend fuels. One reason is that February 2 is Groundhog Day. Our hook has been that the fueling industry is much like the movie of the same name, where every day unfolds exactly the same. For us, the same market conditions happen over and over every spring.

More important than providing content, our Retail Fuels Report provides context. For any elected official considering hearings to explain “outrageous” margins, we only need to look back to what happened the last time gas prices nosedived.

In October 2008, margins soared as gas prices plummeted. The Distribution & Marketing component of a gallon of gasoline shot up to a then-record 25%. For those who wanted an explanation, we reminded them that daily, weekly or monthly statistics are snapshots of a broader picture. “Look at a market cycle of a year or more,” we stressed.

Fast-forward to March 2009, when gas prices began to rise again. EIA reported that Distribution & Marketing was –3.9%. Those who expressed outrage over October 2008’s numbers didn’t offer emergency assistance for an industry that was losing money, on average, for every gallon that it sold — and that’s before expenses.

Again, it’s all context. It was a terrible month, just like six months earlier it was a great month. But take the average of the Distribution & Marketing component from those two very different times and you get 10.6%. The average over the past six years? 10.2%. Funny how market cycles work.

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