OPIS Blog

Summer Driving Season: Demand Disappoints, Margins Save the Day

Evidence continues to mount that 2019 represented the peak for U.S. gasoline demand as a slow decline in 2024 retail volumes was noted.

There was a definite yin and yang of the retail gasoline markets to the recently completed summer driving season. That is while demand continues to struggle and the margins do not. As a result, it proved to be a profitable summer for retailers.

The argument that “40cts is the new 20cts” when it comes to gross rack-to-retail margins got another check mark as the summer average margin was 42.9cts/gal, according to OPIS data. All three months were comfortably above the 40cts/gal mark as well with June averaging 43.8cts, July 41.1cts and August 42.7cts.

It is also likely that those with scale and that are highly ratable would have exceeded that average. Those with size and scale can also absorb the loss of volumes much better than the smaller chains and “mom and pop” retail sites.

Average summer margins in 2024 were almost 50% higher than the 2019 average, so while demand goes down margins go up and that has been the case over the past few years.

While that is the good news, the bad news is that same-store sales are declining. It may not be that Americans are driving less. In fact, it’s the contrary. Vehicle miles traveled according to the Federal Highway Administration are ahead of 2019 on a year-to-date basis.

Data from the FHA from January through July 2024 shows that, minus small hiccups in January and again in June, growth in vehicle miles traveled is running ahead of 2023. On a year-to-date basis, through July, VMTs are just inside of 1.9 billion, representing a roughly 2% increase from 2023. The 2024 figures through July also represent a 1% increase from 2019.

So with vehicle miles traveled up and gasoline demand down, that points to a few factors.

The first and most important is vehicle efficiency, which continues to grow. Based on the most recent data from the EPA the preliminary real-world miles per gallon averages just shy of 27 miles per gallon, while 10 years ago it was just over 24 miles per gallon.

Some of the best strides have been in the pickup truck. Pickup trucks are amongst some of the most popular models in the U.S. and over the past 10 years, efficiency has grown by almost 20% to nearly 21 miles per gallon based on the 2023 preliminary EPA data.

Based on OPIS summer driving season data, U.S. retail stations sold 68,141 gallons per month during the three-month period. Of the three months, June and August were above 68,000 gallons and comparable to one another, while July was a bit of a laggard averaging just over 67,600 gallons.

Chart: Average U.S. Rack-to-Retail Margins in Summer for 2019, 2023 and 20242024’s rendition of the summer driving season based on same-store sales was down just over 3,200 gallons versus 2023 or about 4.5%. However, when compared with 2019, the loss in volume is eye-popping, dropping by more than 20,000 gallons or 24%.

When it comes to profitability though, margins more than made up for the softening demand.

While the combination of volume and average margin in 2023 made retail station profitability on par with 2019, 2024 blew both years out of the water thanks to the stronger gross rack-to-retail margin.

Based on OPIS data, the average profit for a site per month was $29,237 during the summer 2024 driving season. That is more than $3,000 per month more than in the summer of 2023 ($25,691) and 2019 ($25,754). The most recent summer driving season saw profitability rise by more than 13% when compared to the other two years.

Regional Roundup

All the regions OPIS tracks directionally matched the national trend, with higher margins but lower volumes.

Perhaps most concerning is how much same store sales are down from 2019, the peak of gasoline demand. Regional volumes versus 2019 are down by anywhere from 20-30% during the 2024 season. Year-on-year gasoline demand was off anywhere in the 4-5% area for the various regions.

As is normally the case, the West has the strongest margins in the country as the summer 2024 gross rack-to-retail margin at 67cts/gal, with the Northeast at a distant second averaging 42.7cts/gal.

The prevailing theory is that stronger gasoline margins are enough to offset lost gallons and lead to continued station profitability. Generally, that theory is correct, but in a few parts of the country, that is not necessarily the case.

In the West, the summer of 2024 saw the average station produce $54,496/month in profits. However, with station volumes down some 30%, a nearly 40% increase in margins was not enough to continue the upward trend in station profitability as the same metric in 2019 was $56,507/month. Overall in the West, station profitability was down by 3.6%.

Of all the regions, the West has also seen the sharpest decline in same store sales since 2019, at just over 30%.

Another example that goes against the prevailing notion is the changes in the Southeast from summer driving season 2023 to driving season 2024.

Chart: U.S. Summer Monthly/Profit/Site Gasoline SalesStation profitability this summer was largely flat at an average of $21,280 per month, down just $16 from 2023.

Like everywhere else, demand was down and margins where higher, but margins were not high enough in the summer driving months to offset the lost gallons. Average monthly volumes came in at 60,671 gallons, down just inside of 5%. Meanwhile, margins grew to 35.1cts/gal, an increase from last year of just over 5%.

These mostly flat movements in the Southeast present a potential argument that from a percentage standpoint, margins may have to grow a couple of percentage points more than volume losses to keep station profitability rising.

The above theory potentially shows in the 2024 versus 2019 comparisons for station profitability. Same store sales are down 23%, but margins are up 64%. As a result, station profitability is up 26.6% in the Southeast.

Tags: Gas & Diesel, Rack Market, Retail Market