May can be a Jekyll and Hyde type of month when it comes to gross rack-to-retail margins, but the 2024 rendition is certainly the version that downstream marketers would like to see on a regular basis.
Based on the latest OPIS data, the average gross margin for the month of May came in at 45.9 cents per gallon. The May average margin was the strongest one-month average since November 2023 and it was easily the strongest May on record, as no other May has come close. Over the past 10 years (including 2024) the average margin for May was around 26.5 cents per gallon.
Although June is just getting started, the early returns for margins show a similar trajectory for this month, though that can change quickly, considering the volatility in markets.
The month of May certainly experienced some volatility in the average gross margin, but it was from a higher level. During the month, the daily U.S. gross margin averaged anywhere from a low of 33.4 cents per gallon at mid-month, and the high of 53.8 cents came on the last day of May.
Gasoline futures markets, as well as several spot markets, made the strong margins somewhat easy to predict.
The highest gasoline futures settlement of May was on the 2nd at $2.5965 per gallon, but by May 30th the futures market had tumbled by more than 19 cents per gallon, settling at $2.4046 per gallon.
Futures markets only tell part of the story that contributed to a strong gross margin environment as spot prices in several markets exceeded the decline seen on the paper side.
At the beginning of May, Los Angeles CARBOB was pricing around $2.825 per gallon, with San Francisco at $3.015 per gallon, OPIS spot market data shows. But by the end of the month, L.A. gasoline was almost 40 cents cheaper at $2.4275 per gallon with San Francisco more than 50 cents cheaper ending the month at $2.4975 per gallon.
That move, as you may have guessed, supercharged margins throughout the month. The California average gross margin started May at 73.2 cents but ended just shy of 92 cents, with the average gross margin about 6 cents below the highs at 86.2 cents.
A strong margin environment is necessary to make up for lost gallons as same-store sales are down compared to the previous year, based on OPIS monthly gasoline demand data.
With the summer driving season officially underway, retailers will be looking for some positives, and there are some if you happen to be a “glass half full” person.
2024 started the year with very soft gasoline demand, with January running almost 7% below January 2023. However, January is typically the softest month of the year when it comes to gasoline consumption. Since January, the deficits to 2023 have been narrowing.
Though month-to-month volumes are getting some traction, same-store sales versus 2023 are still looking soft. Final May gasoline demand was about 4.2% below May 2023, but if you are looking for the positive, the year-on-year trend is narrowing as the month of May saw the smallest loss in volume compared to a year ago. In fact, May was the smallest year-on-year loss since August 2023.
The monthly improvements are seen in most individual regions.
The heavily populated Northeast region has been consistent in its declines versus 2023 over the past three months with year-on-year declines in the 4.6-4.8% range versus 2023. While the Northeast sees the steady demand drops versus a year ago, the Mid-Continent sees a bit wider same-store sales losses on either side of 5% down.
Southwest is turning in the strongest demand with May running just 2.4% behind 2023. Other than in January when weather was poor, Southwest gasoline demand saw the largest demand destruction, but over the past 12 months, the Southwest has been in striking distance of year-ago levels.
While most point to sliding gasoline demand on the West Coast, the Pacific Coast region performed admirably in May falling 4.2% versus last year.
Based on the latest OPIS data, on a year-to-date basis same store sales are down by 5.3%. Individual regions range anywhere from down 3% to down just over 6%.
Year-on-year market share in May 2024 saw mostly minor shifts between branded and unbranded stations with unbranded stations in the U.S. grabbing a bit more market share against the branded outlets and perhaps to a lesser extent some of the big box retailers thanks to relatively calm retail gasoline prices.
During May 2024, unbranded stations in the U.S. garnered 56.09% of the market, compared with 55.58% during the same month a year ago. Meanwhile, branded market share slipped from 44.23% in 2023 to 43.69% in the recently completed month.
Although some of the big box retailers did see a bit of market share erosion, those, along with some of the grocery chains, remained some of the most efficient sites in the U.S., selling quite a bit of fuel considering much lower station counts than the brands and some of the large regional chains.
Buc-ees, Costco and Sams Club had the highest efficiency ratings, according to OPIS AnalyticsPro data, but in all three cases, efficiency was down nominally from a year ago H-E-B, Wal-Mart and BJ’s all saw efficiency gains, but even with efficiency figures north of 6, they are still about one-third that of Buc-ees. Kroger, Ingles, Frys and Fred Meyer rounded out the top 10 in efficiency in May.
Costco maintains its spot as the most aggressive when it comes to pricing, as the average Costco price was 32.9 cents below the local average, which is just over 2 cents more of a discount than last May. One of the bigger movers in average price discounts versus the local average was California-based Flyers. There are 23 brands in the OPIS database priced 25 cents below the local average, increasing the discount from last year by 18 cents.
With May 2024 priced several cents higher than May 2023, big box retailers and some chains used it as an opportunity to become more aggressive on street price.
Thanks to irrational exuberance on the part of oil speculators in the spring of 2022, comparisons for key fuels in the U.S. are now spectacularly striking.
The retail portion of the fuel chain is the most visible to the general public and likely the most complex to navigate.
Who Comes Up With Retail Gasoline Prices?
If you ask the average person who sets the price of gasoline at their local station, they might tell you that the station owner slaps the price tag on the pump – while shaking their head at how much their fuel bill eats into their monthly budget.
But that’s not really the case.
The following is an excerpt from Americas: Oil Market Outlook 2023.
1 U.S. gasoline prices will again command the consumer stage but for different reasons than in 2022. A majority of U.S. retail numbers will commence 2023 below $3/gal and beyond a seasonal higher priced interval and those numbers may disappear by spring only to return later in the year. Diversity in state-by-state numbers will continue with perhaps $1.50/gal separating the lowest and highest priced states.
2 The 2022 OPIS/AAA average price for gasoline was within a fraction of $3.97/gal. A reasonable projection for 2023 calls for $3.39/gal to $3.49/gal. Relatively higher prices in western states and the Northeast will offset many of the sub-$3/gal prices in the Southeast, Midwest and along the Gulf Coast and in the Southwest. The gasoline “cut” for U.S. refiners will continue to be subordinate to diesel and jet fuel returns for most of the coming year.
3 Whereas 2022 U.S. average gas prices varied from about $3.099/gal to just over $5.015/gal, the fluctuations in 2023 will be much tighter. California will march to the tune of its own drum, with prices racing to $5-$6/gal levels during episodes of refinery downtime or other intervals of tight supply. Most lower 48 states will see availability of sub-$3/gal gasoline in various portions of 2023.
4 U.S. gasoline consumption in 2022 looks to be about 8.7 million to 8.8 million b/d when final numbers are rendered, or about 600,000 b/d below the ~9.3 million b/d figures that were the norm from 2016-2019. Cheaper prices are not likely to alter new commuting habits, and better mileage standards will keep consumption flat to 2022. So, OPIS expects annual demand of about 8.8 million b/d or about 365 million gallons per diem to continue. That projection takes into consideration a shallow recession or some lower employment numbers in the U.S. in the second half of the year.
5 Thanks to the 2022 legacy, some dramatic price comparisons are likely. We suspect that between the middle of the first quarter of 2023 and the end of the second quarter, U.S. gasoline prices may be $1.50/gal or 30% below same week 2022 figures. This may present some of the most spectacular deflation across the commodity space.
6 Diesel price strength will abate but diesel will continue to be considerably more expensive than gasoline, thanks to fuel switching (diesel for some purposes instead of natural gas in Europe and SE Asia) and low inventories. However, the anniversary of the Ukraine Invasion and paroxysms in 2022 diesel prices should bring deflation for this product as well. U.S. diesel prices peaked at $5.8159/gal in mid-June 2022 and much of 2023 should see diesel about $1.50/gal lower.
7 The 2022 average price for WTI came in around $94.50/bbl. We suspect that 2023 will see a price only slightly below this number with $90/bbl a reasonable prophecy for a 2023 annual average, with Brent commanding $95-$96/bbl. Precisely how high these numbers move above the average will depend on the successful reopening of China and the ability of western countries to avoid a significant recession. The lowest numbers for crude are most likely to be recorded in January and February.
8 Talk of global refining shortages will ease and perhaps abate by the second half of 2023. Huge new refining complexes in Africa, Southeast Asia, and the Middle East will restore comfort in the ability to create enough gasoline, diesel and jet fuel in international markets. With the notable exception of the lame duck Lyondell refinery in Houston (scheduled to close in late 2023) all U.S refineries should survive and even prosper. Refiners should see consistent domestic demand, some further growth in export activity, and a substantial advantage versus much of the world that comes thanks to much cheaper natural gas, electric, and hydrogen costs.
9 A real test for diesel and jet fuel arrives early in 2023 via the EU ban on Russian imports of diesel, jet fuel and gasoline. It will not be easy for European countries to be weaned from Russian dependency, particularly if Mother Nature brings cold temperatures in the Northern Hemisphere. U.S. futures’ markets might have a very dynamic first quarter since the Phillips 66 Bayway refinery — perhaps the most critical plant for CME futures’ delivery — goes down for 60 days in February and March.
10 Retail gasoline will continue to be a hot sector in 2023 although margins may slip from the off-the-charts’ levels of 2022. At least three major oil companies – BP, Shell and Motiva (owned by Aramco) — will pursue joint ventures or outright purchases of North American chain retailers. Brisk M&A activity will persist, although transaction multiples may dip with rack-to-retail margins.
The US national average for gasoline as measured by OPIS on Dec. 12, 2022, represented deflation of 2.02% versus the same day 2021. It’s the fourth consecutive deflationary day after a span of 654 days where gasoline was more expensive than year ago levels.
Now that the summer driving season has come to an end, the scorecard from OPIS shows what was a very profitable period between Memorial Day and Labor Day 2022.
The First Driver of the 2021 Motor Fuel Panic
In mid-April, a special report by Oil Price Information Service (OPIS) sounded an early warning signal for gasoline. Subscribers were told that for the first time in four years, the US gasoline distribution system might be hard-pressed to keep stations “wet.” In the jargon of downstream distribution, staying wet means never running out of fuel.
*Editor’s Note: Hurricane Sally is expected to make landfall late tonight or Wednesday along the Mississippi-Alabama coast. As of 2 PM ET on September 15th, OPIS has confirmed that Phillips 66 has shutdown its 269,140 b/d Alliance refinery in Belle Chasse, Louisiana. Though not confirmed by Chevron, marekt source tell OPIS that Chevron has shut the 375,200 b/d Pascagoula refinery, while the terminal was shut on Monday September 14th.
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