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May 16, 2013
U.S. Hikes ULSD Exports on Wide ULSD-Jet Price Spread, Favorable Arb

The U.S. has stepped up its exports of ULSD to South America and Europe so far in May as a result of higher refinery utilization, favorable arbitrage economics and a stronger production of ULSD at the expense of jet fuel, trading and shipping sources told OPIS on Thursday.

Distillate export activities have increased significantly in the past few weeks, with the focus on ULSD to South America. The pace of tanker chartering for U.S. distillates exports so far in May is well ahead of the monthly average seen earlier this year.

So far in May, about 30 clean tankers have been booked for distillates delivery out of the U.S. Northeast, U.S. Gulf Coast, East Coast of Canada and the Caribbean for delivery to Europe, and the number of tankers chartered for a South-bound voyage to Latin America are expected to be on par or higher than European deliveries.

Refiners and traders seen booking outbound distillates ships include BP, ExxonMobil, Valero, ATMI, Petrobras, PMI and Chevron.

The strong tanker chartering demand has pushed up rates for the backhaul trans- Atlantic voyage to a recent high of World Scale 90 points, compared with a low of WS 60 early this year.

The push for ULSD exports was attributed to the sharp jet fuel cash discount against ULSD on the Gulf Coast.

Gulf Coast ULSD is priced at a discount of 4.5cts under the NYMEX screen, sharply higher than 15.75cts/gal under for jet fuel. While jet fuel did not require RINs, Gulf Coast ULSD remains comparatively stronger to jet fuel at 12.5cts/gal under even after factoring 8cts/gal for RINs cost.

U.S. Gulf Coast refiners are now tweaking their refineries to favor more ULSD production at the expense of jet fuel, based on the ULSD-jet fuel price spread. However, that shift to ULSD from jet fuel is limited for most refineries.

This recent trend of producing more ULSD is yet to be reflected in the Department of Energy's monthly products yield data. The latest data available is for February.

Meanwhile, Gulf Coast refinery utilization rate breached the 90% mark for the first time since early January. PADD3 refinery utilization rate for the week ended May 10 was at 92.5% of operable capacity.

April 26, 2013
Truckstop Probe Casts Pall Over Industry

The U.S. truckstop industry is reeling over the federal probe of Pilot Flying J's manual rebate program.

The public hit to the truckstop titan's reputation - and potentially its bottom line - sent a chill through the fuel distribution chain. On its website, Pilot Flying J bills itself as the largest retailer of diesel fuel in the country, buying more than 8 billion gallons of diesel fuel annually.

Because of the company's size, its long history and its leadership position in the industry, experts believe the investigation could bring greater scrutiny to the commercial fuel business, raising the bar for integrity in fleet deals for all marketers.

The pivotal moment came when the federal affidavit was published several days after the Federal Bureau of Investigation's April 15 raid of Pilot Flying J's (PFJ) Knoxville, Tenn., headquarters. The damning testimony subsequently "went viral" in the petroleum distribution community. Click here to view the affidavit.

The affidavit quotes Pilot salesmen discussing competitors' sales practices, which may cast a shadow over other truckstop operators. Forrest Baker, a retired economist and longtime industry consultant, says the natural question is, "How do you survive in the market if you don't play the same game as your competitors?" 

Rival truckstop operator Love's Travel Stops and Country Stores quickly tried to distance itself from the allegations against PFJ. In an internal memo April 22 it reminded employees of the company's "customer focus, integrity, strong work ethic, innovation and perseverance."

Founder Tom Love wrote that the 50-year-old company has strived to do business in a "straightforward and transparent manner." A company spokesman refused to comment directly on the investigation.

The American Trucking Association also declined comment. "We know that these fuel discount programs exist," spokesman Sean McNally told Oil Express, "but beyond that we don't have much information because we just haven't asked our members so as to avoid discussions of pricing and discounting."

PFJ is regarded as well-heeled. In addition to the wealthy Haslam family, Wall Street fund CBC Capital owns a substantial equity stake in the company.

But suppliers are on alert for any unexpected developments that could hurt its credit status. A day after the news broke of the FBI raid and lockdown of company headquarters, credit ratings service Moody's put its debt ratings for Pilot Travel Centers on review for a downgrade.  About $4 billion of rated debt securities is under review.

***TARGET OF LAWSUITS***
A Georgia trucking firm also filed suit against the company. The suit by Atlantic Coast Carriers of Hazelhurst, Ga. - a candidate for class action status - alleges that PFJ cheated it and "numerous" other fleets out of rebate money on diesel purchases. It requests the return of all rebate funds to Atlantic Coast and other customers suffering similar economic losses, and asks for unspecified punitive damages and attorneys' fees. It is likely the first of more suits to come.

Just before presstime, a national litigation firm - Girard Gibbs LLP - reached out to PFJ customers seeking information and/or redress. The firm has already seen a great deal of interest, attorney Dena Sharp told Oil Express.

"It's a situation that has caused a lot of concern in the industry," Sharp said. She pointed to transcripts in the affidavit in which PFJ executives characterized small and midsized trucking firms as unsophisticated. "Sophistication shouldn't be a measure of whether you get your money or not," Sharp said.

There are expectations in the supply community that PFJ's reputation and relationship with buyers and sellers may never be the same.
   
In the affidavit, managers used all types of code words to refer to rebate fraud, such as "screwing" customers, "cutting the rebate," and "cost-plussing." Vice president of sales John Freeman suggests having a two-tier pricing system where the company has a set of racks for companies "that don't close-watch, don't optimize" and another set of rack data "where you have to get in that optimizing close-watch game."
   
In a televised press conference, PFJ's CEO Jimmy Haslam insisted, "That's not how we do things around here. We have respect for people, respect for our customers. We don't talk and act that way."
  
Haslam vowed to audit all trucking customer contracts and pay any monies owed. He said the company is doing away with the manual process for figuring rebates and placing some of its staff on administrative leave. Haslam said PFJ is hiring a chief compliance officer and will also appoint an independent investigator to oversee the company's own internal investigation of the manual rebate program. 
   
But Baker said that "what's coming out of the investigation, release and publication of the affidavits and the findings is that no one is believing that Pilot is an ethical seller."

April 23, 2013
Potential Breaking Point on Retail Gasoline Price at $3.44/gal: AAA

Half of U.S. adults consider gas prices to be "too high" when it reaches $3.44/gal, indicating a potential breaking point on gas prices, according to a new consumer price index developed by AAA.

OPIS notes that RBOB gasoline futures prices have been weighed down recently by concerns about an underwhelming demand due to weather and the sluggish economy. Also, spot-to-retail margin has been relatively robust in several regional U.S. markets as retail prices are falling slower than the spot values.

On Tuesday, national average retail gasoline was at $3.515/gal, compared with $3.671/gal a month ago and $3.858/gal a year ago. Prices currently vary by more than $1 per gallon nationwide. The national average has remained above $3/gal for 28 consecutive months, and above $3.44/gal for 82 days. 

While the national average has not surpassed $4/gal since 2008, it is not uncommon for motorists living in the West Coast, Northeast and near the Great Lakes to pay more than $4/gal. 

Roughly two-thirds of Americans (62%) are offsetting high gas prices by changing their driving habits or lifestyle.

"It was not long ago that motorists were shocked to pay more than $3 per gallon for gasoline, but now that is standard at stations nationwide," said Robert L. Darbelnet, president and CEO of AAA. 

"Today's average consumer feels a breaking point on high gas prices closer to $3.50 per gallon, and expensive prices have forced many motorists to change their driving habits," he added.

AAA's gas-price index tracks consumer attitudes by determining at what price the cost of gasoline becomes too high. The results from the open-ended survey demonstrate how attitudes can be expected to change as prices rise above significant milestones.

Forty-six percent believe gas is too high when the price reaches $3/gal, and 61% believe gas is too high when the price reaches $3.50/gal. Ninety percent believe gas is too high when the price reaches $4/gal.

"It is possible there is a new normal in terms of consumer attitudes now that gas prices have remained above $3 per gallon for more than two years," continued Darbelnet. 

"Most people have resigned themselves to paying higher gas prices and are cutting back on driving, shopping and dining out to save money," he said.

Consumers report changing their driving habits or lifestyle in a number of ways to offset recent gas prices, including driving less, reducing shopping or dining out, driving a more fuel efficient car and delaying major purchases.

Younger consumers ages 18-34 are more likely to offset recent gas prices by working closer to home or using public transportation more regularly than adults ages 35 and up (48% versus 35% and 25% versus 10%, respectively).

April 23, 2013
Trucking Firm Files Class Action Against Pilot Flying J

Pilot Flying J has just been hit with a potential class action suit filed by a Georgia trucking firm, Atlantic Coast Carriers of Hazelhurst, Ga.

The challenge follows a federal investigation into the truckstop titan's commercial rebate practices.

The fleet alleges the Knoxville, Tenn.-based chain cheated it and "numerous" other fleets out of rebate money on diesel purchases and cites the damaging information released last week in a federal affidavit.

The suit, filed April 20 in the Circuit Court for Knox County in Tennessee, asks to be certified as a class action, requests the return of all rebate funds to Atlantic Coast and other customers suffering similar economic losses, and asks for unspecified punitive damages and attorneys' fees.

"Pilot staff intentionally withheld relevant pricing information from its customers who made inquiries about the rebate amounts they received," the complaint says. "If a customer caught the discrepancy, Pilot blamed it on a computer glitch."

Like the affidavit, the complaint alleges top executives CEO Jimmy Haslam, III; President Mark Hazelwood; and CFO Mitch Steenrod were aware of the alleged scheme.

Atlantic Coast and the rest of the class were led to buy diesel fuel for"substantially" more than the agreed-upon rate, the fleet contends.

The suit also claims Pilot Flying J "wrongfully converted consumer rebate funds to its own use" and received "funds derived from a pattern of racketeering activity."

Haslam has said few customers were affected by the "manual" rebate program under scrutiny. But Atlantic Coast alleges "numerous" customers were shorted on"numerous" rebate checks over a period of several years.

In a statement released yesterday, Haslam said the federal investigation is focused on a "narrow slice" of the company's business in which rebates on diesel fuel purchases are manually calculated and paid to a "relatively small number" of its 3,300 trucking company customers.

"We are continuing to cooperate appropriately with investigators, but we are determined to understand on our own the questions they are asking and to do everything we can to make sure we are never in this position again," he said.

Haslam outlined five remedial steps Pilot Flying J is taking: performing an internal audit, placing several members of its diesel fuel sales team on administrative leave, converting all diesel fuel customers to electronic calculations and payment to eliminate possible abuse in manual calculation, hiring a chief compliance officer, and hiring an independent special investigator to oversee its own investigation.