Oil Prices Weaken

Peace talks between Ukraine and Russia plus lockdowns in China are helping cool off the market.

March 14, 2022

Customer Pumping Gas

ALEXANDRIA, Va.—Oil prices are falling amid rare progress at peace talks between Ukraine and Russia in addition to COVID-19 lockdowns in China, reports Reuters. Monday morning oil trading had Brent crude down by $4.67, or 4.1%, at $108 a barrel, and U.S. West Texas Intermediate crude fell $5.71, or 5.2%, to $103.62 a barrel. Both contracts are up 40% year to date.

COVID-19 cases are up in China, which is the largest crude oil importer and second largest consumer after the U.S.

"Oil prices might continue moderating this week as investors have been digesting the impact of sanctions on Russia, along with parties showing signs of negotiation towards (a) ceasefire," said Tina Teng, an analyst at CMC Markets.

This is good news for convenience retailers, who are taking a hit on profits. Danny Nordman, who owns three gas stations in Texas, has been raising his fuel prices as little as possible, not making much profit, if any at all.

“We’ve raised the price of fuel as little as we could [and] absorbed the price increases to cut into our profits,” Nordman told NBC News. “On Friday, the wholesale price went up 21 cents. … Our price at the pump went up 11 cents.”

There is an assumption that gas station owners make bank when gas prices are high, but NACS data shows that c-store owners make about 15 cents a gallon on average.

“We have not made profit on fuel in probably nine days. We’ve sold fuel essentially at cost, and the thing about selling something at cost is that it’s never taking into account the incidentals,” he said, such as credit card processing fees and wear and tear on his equipment.

Because gas station owners have to refill their underground storage tanks fairly often, they must sell gas at a price that will cover the cost of their next order, and the unrest in Ukraine is making price planning difficult, if not impossible.

“If there was a time to not want this situation—from a purely gas price standpoint—this is the time,” Jeff Lenard, NACS vice president of strategic initiatives, told NBC.

As c-store retailers know, profit comes from inside the store, not the forecourt.

“The idea is to have a very competitive gas price, and when they go in the store, you can make money off that transaction,” Lenard said. NACS data finds that close to 60% of people who stop for gas also go inside the store.

Nordman said his customers aren’t spending less inside his stores, but he’s ready for a downtick in his bottom line.

“Eighty percent of the transactions are credit card transactions. … It will eventually hit the consumer when that credit card bill comes in,” he said. “That’s when I think we will see it.”

In the U.S., credit card swipe fees remain one of the highest operating costs for convenience store retailers after labor, according to NACS State of the Industry data. Consumer preferences for more touch-free transactions and the coin circulation challenge in summer 2020 led to record debit and credit card usage at convenience stores. In 2020, 74.6% of all transactions were paid by plastic, and overall card fees paid by the convenience store industry were $10.7 billion, NACS SOI data indicate.

The fees are set to rise even higher when $1.2 billion in increases planned by Visa and Mastercard take full effect in April. The increases were delayed from a year ago after members of Congress said they would “undermine efforts to help the economy recover.”

Inflation isn’t escaping retailers either, with Nordman seeing a 20% increase in costs in almost every category, but Nordman says foodservice is a way to combat cost increases.

“I want the guy that’s buying fuel to come in and buy a hamburger from me. A good kitchen person will have onions on that grill whether they’ve got customers or not,” Nordman told NBC. “That’s how the mom-and-pop businesses have to distinguish themselves from the corporate stores. In the gas station business, you need to be in the hot food business.”