Gas Prices Drop, But Nobody’s Driving

“It’s dropped so much that I’m bewildered,” Bill Douglass tells a reporter.

March 31, 2020

ALEXANDRIA, Va.—On Sunday, regular gasoline was just $1.31 a gallon at the North Texas convenience stores owned by Bill Douglass of Sherman, Texas. Yet sales were down roughly 50% in some outlets, reports the Wall Street Journal.

“It’s dropped so much that I’m bewildered,” said Douglass, founder of Douglass Distributing Co., which sells wholesale fuel and operates Lone Star Food Store convenience shops. “We’re under siege.” Douglass served as NACS Board chairman during 2004–05.

Low prices at the pump usually encourage drivers to log more miles, but with the spread of COVID-19, millions are sheltering in place and leaving their autos idle. In the U.S., gasoline has been worth less than crude recently, even with oil fetching around $22 a barrel, which increases the chance that refineries will close in coming weeks to balance supply and demand.

“We’re nearing kind of minimum crude rates in many of our refineries today,” Robert Herman, head of refining at Phillips 66, said last week. Phillips 66, the largest U.S. refiner by market capitalization, announced it would slash this year’s capital spending by $700 million, to $3.1 billion, after it saw domestic demand for gasoline drop 20% in just a week.

Analytics firm IHS Markit predicts daily gasoline demand in the U.S. could be less than half of normal levels over the next four-to-six weeks, as people self-isolate. A week ago, fuel sold on the Gulf Coast for around $16 a barrel, more than $4 dollars below the U.S. benchmark oil price at the time, S&P Global Platts data show. That means a barrel of crude cost more than what the processed product fetched.

Thanks to trucking and other commercial activity, margins for diesel have held up better. But the demand for jet fuel dropped tremendously as airlines grounded planes. If those dynamics continue, some expect refineries to delay resuming operations after periods of maintenance or even power down in the coming weeks.

“There’s not a lot you can do if nobody wants your products,” said Amy Kalt of Baker & O’Brien Inc., an energy consulting firm, who added that the duration of the shutdowns would depend on how long people isolate themselves and the gasoline inventory that builds up during that time.

American drivers, many of whom own newer, more efficient vehicles, were already using less fuel before the pandemic, and some industry executives have been saying fuel production won’t be an area of growth. U.S. gasoline demand dropped about 0.6% last year even as drivers logged more miles, federal data show. The domestic response to the coronavirus is still in its early days, but some think gasoline consumption may never fully rebound.

“I think we will have a permanent and long-term reduction in travel patterns,” said Ramin Shabanpour, assistant professor of engineering at the University of Illinois at Chicago, who has written on telecommuting and its impact on transportation. “We are learning right now how we can do our daily activities—running our work meetings, attending our classes—online instead of spending our time traveling.”

Still, privately held Meridian Energy Group is moving ahead with plans to build refineries in North Dakota and West Texas. Slated to open in 2023, the North Dakota facility would be the nation’s first new refinery in decades.

“The demand may pick up less vigorously when we’re past COVID-19, but [people] will respond to these price signals, and they will get back in their cars and go places,” said Bill Prentice, chief executive of Meridian Energy.

Earlier this month, Douglass’s stores in Texas were busy with drivers hoarding gasoline, but that business has waned. He recently was forced to lay off employees for the first time in the 39-year history of Douglass Distributing,

“Nobody is spending 10 more cents than they have to spend,” Douglass said.

Coronavirus Resources

NACS has compiled resources to help the convenience retail community navigate the COVID-19 crisis. For news updates and guidance, visit our coronavirus resources page.