Beyond the Fuel Screen

Kloza outlines challenges facing retailers in 2014 and beyond

By  Melissa Vonder Haar, Tobacco Editor

Many people are keeping their cars longer than they used to, according to analyst Tom Kloza, but when they eventually buy new cars, those vehicles will be much more fuel-efficient, thereby driving down gasoline usage.
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Besides promising an increase in the quality of hair vs. that offered by speakers such as Walter Zimmermann and Todd Hale during the first day of the NACS State of the Industry Summit, OPIS chief oil analyst Tom Kloza vowed to take retailers “beyond the screen” during his “Motor Fuels Overview” general session.

When it comes to the oil business, simply following the futures market on CNBC, Bloomberg or Fox Business is not enough, Kloza said: “There’s a lot more than what meets the eye.”

While what’s happening “beyond the screen” is affecting fuel retailers, it’s not always being covered accurately, he pointed out. While the U.S. Energy Information Administration (EIA) would suggest that there was a 0.5% to 1% increase in gasoline demand last year, OPIS’ data suggests there was actually a 5% to 7% drop in demand compared to recent years.

One possible reason for the discrepancy? Organizations such as OPIS and NACS (whose numbers also disagreed with the EIA projection) get their data from actual retailers.

“I think EIA does a great job at most things,” Kloza said. “But I think measuring volume by how much is leaving terminals vs. how much is actually being sold at stations is a bit of a fool’s errand.”

Logistic-Centered Supply

“The markets you deal with every day are totally dependent upon logistics,” Kloza continued. “Logistics rule North American volatility right now. When you get into the different markets where you operate your stores, there’s as much diversity downstream as we’ve ever seen. It’s really wreaking havoc, led by changes in logistics.”

In a glance at the futures market, 2013 seemed to be a great year to be in the crude business, with crude oil an average of $100 per barrel at the end of the year. Yet in Alberta, British Columbia, crude was barely selling for $60 per barrel because of logistical issues such as Canadian refineries going down and a pipeline not transferring as much product as it was supposed to.

“It used to be a single reaction when something happened with the logistics: If a pipeline or refinery went down, prices would go higher for gasoline,” said Kloza. “Now there’s all this new crude oil waiting to go to market, so when a pipeline or refinery goes down, the price of the crude may drop $10 to $25 a barrel. And virtually no one sees it; it’s not covered by CNBC or Bloomberg, and it’s really something that’s covered only by people who go beyond the screen and look into regional prices.”

Retailers in Florida or Georgia are already well versed in these logistical nightmares, thanks to this year’s polar vortex and the usual problems that accompany the Gulf ’s hurricane season.

“We’ve already had events this year where we’ve been at the mercy of logistics,” Kloza said. “A lot of places are so dependent on one singular refinery that if it goes down, you want to load up on fuel to the extent that you can, because there will be temporary (price) spikes.

“The ‘just-in-time inventory’ issue is not getting any better,” he continued. “We really have little inventory downstream, and things can happen quickly if you’re in downstream markets. We just don’t have the juice that we used to have.”

Dwindling-Demand Challenges

The logistical pricing game is in part is due to the fact that North America is producing more crude oil than ever before; the influx of supply means the crude can be sold at very distressed prices. That crude needs a market.

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