Refiners are getting crushed, but gas station owners are happy
I just came across the following fascinating report that was put together the U.S. Department of Transportation. It illustrates just how significant the demand destruction caused by high gasoline prices was. In September 2008, the latest period that data is available for, total travel on U.S. roads and streets declined by 4.4% versus September 2007. That's a big drag on the price of oil, given the fact that the United States is the world's largest consumer of oil...consuming more than the next five countries on the list combined.
The report even breaks road travel down by region. Northeast consumers were the least impacted by the rise in gas prices. Driving in that region fell by only 3.4%. Perhaps that is because everything is so expensive in the Northeast that gas represents a smaller portion of consumers' income there. The Southeast and South Central parts of the country were hit the hardest by rising gas prices. Travel in both of those areas fell by over 5%.
The average price of a gallon of gasoline dropped below $2.00 for the first time in over three years today. The price of gas is falling so fast that the crack spread, the amount of money that refiners make by turning oil into gasoline, fell to a staggering -$4.57 this morning. The crack spread has been negative for over a month now.
Refiners are getting killed. Gas station owners are doing very well though. The average price per gallon at the pump currently sits a solid $0.84 above the wholesale price paid by gas station owners. Look for CostCo (COST) to benefit tremendously from this trend. COST's earnings were really hurt by its gas station margins when the price of oil was skyrocketing earlier this year. Now that the trend has reversed it should serve as a strong tailwind for the company which is already benefiting from consumers looking for good deals in these trying times. I expect COST to report better than expected earnings in Q4.
As I mentioned, the aforementioned data which shows that consumers are cutting back on their driving is from September, so it's a little old. Gas prices were higher then, but the economy was in better shape...or at least people believed that it was. The question is whether the rapid drop in the price of gasoline has been enough to stimulate consumer demand aka driving again. I suspect not. There is some indication that demand destruction may be easing. According to data compiled by MasterCard U.S. consumption of the motor fuel dropped by only 2.8%. This is the smallest drop ineleven weeks.
Regular Gasoline at the Pump Falls Below $2 a Gallon
U.S. DOT September 2008 Traffic Volume Trends