Unprecedented Supply Shock Meets Unprecedented Demand Shock
It was not until mid- to late February that demand issues started to hit the United States, but the exponential growth in demand destruction coincided with schools closing, state governments issuing stay-at-home orders and requiring non-essential businesses to close their offices.
Due to the most significant demand destruction not taking place until late in the quarter, full quarter numbers may not look as terrifying as originally thought.
On average, same-store sales volumes during the first quarter were off by 8.2%, according to data from OPIS DemandPro.
According to volume data from about 15,000 stations around the nation, OPIS estimates that gasoline demand has gone from about 7.8 million b/d in the beginning of the year to less than 4.9 million b/d by the end of the quarter. During a few weeks in late February and early March, gasoline demand ran just shy of 8.8 million b/d, perceived to be consumers stocking up before stay-at-home orders went into effect.
Stay-at-home orders were first issued in the coastal regions of the Pacific Northwest and Northern California, with states in the Northeast issuing stay-at-home orders around the same time. As a result, these regions saw the largest quarterly demand declines, as Northeast volumes fell by 9.3% and the West (which includes the Rockies) was off a substantial 10.1%.
First Quarter Volume Change vs. Q1 2019
OPIS notes that the inclusion of the Rockies in the West data may have kept the quarterly volume figures from sliding even more.
The other regions that OPIS DemandPro tracks (the Southeast, the Southwest and the Midcontinent) did not necessarily see the same demand destruction, as quarterly volume losses ranged from 7.2% to 7.4% during the quarter. These regions are catching up to the Northeast and West, however, as weekly reports in late March indicated demand destruction in the 40%-50% area.
As a result, OPIS estimates that the average monthly volume at U.S. retail outlets stood at 78,860 gal. That compares with nearly 86,000 gal in the first quarter of last year. The West saw the largest average-gallon loss, going from well over 110,000 gallons to barely 101,000 gal per month.
The second quarter is already off to a rough start. Anecdotally, depending on the region, sources are reporting volumes off as much as 75%. The wider year-on-year losses, though, for early to mid-April are calculated against a time when demand is typically on the rise.
Estimated Monthly Volume per Site by Region in First Quarter
Estimated Monthly Profit on Gasoline in First Quarter
OPIS Estimated Volumes Converted to Millions of BBL/Day in Q1 Each Week
Year-on-Year Change in Same Store Volumes Each Week
Estimated Weekly Profit on Gasoline Sales for Average Site (Vol * Margin)
Track actual fuel sales volumes. Updated weekly, OPIS DemandPro allows users to see same-store volume metrics on a regionalized basis. With over 15,000 retail stations (representing more than 15% of the total volume being sold) across the U.S. directly reporting weekly fuel sales, there is no better way to track your volume performance against your competition.
Brian Norris Executive Director, Retail Fuels, OPIS
Off-the-Chart Margins Offer a Silver Lining
The swift moves in oil prices have left rack-to-retail margins in record territory. However, with fewer motorists on the road and fill-ups, convenience stores are losing potential inside sales.
During the first quarter, the average U.S. margin stood at 39.2cts/gal, with the highest margins coming at the tail end of the quarter. Margins had been performing relatively well even before the price war and demand shock sent crude oil and refined product prices spiraling lower.
The first quarter of the year can always be challenging for margins. The 2019 Q1 average was considered solid, but this year saw margins nearly double in the first quarter of 2020.
Estimated Rack-to-Retail Margin in First Quarter
Early-year geopolitical tensions sent crude prices to an early high. A quick price retracement left margins on solid footing. According to data from OPIS MarginPro, only one week in 2020 so far saw the average margin trail last year and that was the first week of the year, when the average margin of 25.7cts/gal was less than a penny below a year ago.
OPIS Weekly Rack-to-Retail Margins Each Week in First Quarter
Since then margins have blown out on a weekly basis, with the average margin ending the first quarter at about 87cts/gal. It was not uncommon to see several markets with margins greater than $1/gal on deep discounts at the rack and slow-moving retail prices.
Desperation sales at the rack level have seen several markets where OPIS has captured sales of finished E-10 gasoline at less than 30cts/gal in recent days. Additionally, parcels of gasoline at the rack have been selling at discounts of 15-20cts to the OPIS low rack price on occasion.
That has also kept average rack-to-retail margins on strong footing, even as retail prices come down and now average less than $2/gal in the U.S.
The largest cents/gallon margin moves in the first quarter were in the Northeast, where the average margin grew to 46cts/gal -- up 21.5cts/gal. The West had the highest outright margin at 57.8cts/gal -- up a little more than 17cts/gal versus a year ago.
The Southeast, the Southwest and the Midcontinent, while posting smaller outright margin averages, have seen spectacular growth versus that of last year. The Midcontinent saw the smallest-percentage gain versus last year: an eye-popping 99%. The Southeast and the Southwest saw quarterly average margins grow 133% and 140%, respectively. Although all three regions saw massive increases in margins, the averages were in the 31-34cts/gal area.
With the record-breaking margins came strong station profitability, as the stronger margins offset lost sales volumes of fuel. However, the potential inside sales lost at most chains more than likely took a chunk of store profits.
OPIS estimates that the average monthly profit on gasoline in the first quarter was $30,913. That represents a nearly 75% increase from the first three months of 2019.
Like gross rack-to-retail margins, the Southeast, the Southwest and the Midcontinent saw monthly profits almost double from those of last year, while the West saw profits up nearly 30%, to close to $60,000. In the Northeast, estimated profits were up more than $15,000, to $37,594.
According to OPIS data, estimated profits were strongest during the week of March 21 at just shy of $12,000.
Get a regionalized, brand-by-brand look at fuel profit with OPIS MarginPro. Grade your profit performance against your key competitors in any market.
Fred Rozell President, OPIS
Little Change to 1Q Market Share
Market share among major supplies was little changed during the first quarter outside of some tweaks.
Shell holds the largest U.S. market share, followed by Exxon. Both brands saw slightly lower market share in the first quarter versus Q1 2019.
Chevron, on the other hand, saw its market share grow, presumably as the major snapped up more West Coast fuel sales and likely took gallons away from other brands. Of the majors, Chevron was the only one to see its market share grow during the first quarter.
Top 10 Market Share for Traditional Gas Brands in First Quarter
Chevron also grabbed a bit of market share at a slightly higher price. According to data by OPIS MarketSharePro, Chevron was able to price 10.14cts/gal higher than the average competition.
Major brands, in general, priced higher in the first quarter than same time last year in general from 0.2-0.5cts/gal. The majors’ premium to the average was due to swiftly falling retail averages.
As major brands saw mostly flat market share, some of the nontraditional brands saw solid jumps. Circle K’s market share grew to 7.29% during the first quarter, up 0.61% versus Q1 a year ago. Speedway also saw a boost in market share versus that in the first quarter of last year.
Top 10 Market Share for Non-Traditional Gasoline Brands (Unbranded) in First Quarter
Though Wawa has significant operations in areas that are being impacted by stay-at-home orders, its market share still grew versus that of a year ago.
Of the top 10 nontraditional gasoline brands, just three saw smaller market share than in the first quarter of last year, but average pullbacks were minimal, at 0.07%, OPIS MarketSharePro data shows.
As retail prices fell through the quarter, the most aggressive pricers on the street seized the opportunity to get even moreso, especially with wholesale prices falling to unprecedented levels.
Costco, according to OPIS data, on average priced just over 28.5cts/gal below its competition, almost a nickel cheaper than the first quarter of 2019.
While Costco was the most aggressive in the first quarter, other low-price leaders also took the chance to get more competitive on the street, lowering prices by 1-3cts/gal when compared to the first quarter of last year.
Top 10 Most Aggressively Priced Non-Traditional Chains vs Direct Competitors
Top 10 Traditional Brands that Charge the Highest Price vs Direct Competitors
Top 10 Most Efficient (Market share/Outlet Share) Traditional Gas Brand in First Quarter
Top 10 Most Efficient Non-Traditional Retailers (Unbranded) in First Quarter
Track market share, outlet share, efficiency and localized price differentials in real time with OPIS MarketSharePro. Measure and optimize station performance to capture more market share.
Scott Berhang Vice President, Sales, OPIS
