Exxon Exits Low Profit Gas Pump Retail Business
Companies / Oil Companies Jun 13, 2008 - 02:14 PM GMTBy: Mike_Shedlock
The Wall Street Journal is reporting Out of Gas:Exxon to Exit Low-Profit Retail Pumps .
Exxon Mobil Corp., purveyor of one of the most recognizable gasoline brands in the world, is getting out of the domestic retail gasoline business. The oil giant said Thursday that over the next few years it will sell the 2,220 gasoline stations it owns in the U.S.
That won't mean the end of the Exxon Mobil name on gas stations. The company expects to sell most of the stations to distributors that already own and operate about 10,000 other stations that carry Exxon Mobil signs and are supplied on a wholesale basis by Exxon Mobil. Professor Andrew Jeffery was discussing this today in Exxon Latest in Gas Station Exodus .
Despite record fuel prices, the painfully large sums we're spending at the pump aren't affording gas station operators an early retirement.
Most operators barely turn a profit on the gas they sell, raking in a whopping 11 cents per gallon, according to The Wall Street Journal. Stations buy the gas from refiners, who purchase crude on the open market or drill for it themselves. Oil prices have been rising faster than refined gasoline prices, so margins have been shrinking for the retail operators.
Exxon Mobil (XOM) announced yesterday it's had it with the measly returns on selling gas to consumers. Following the industry trend away from the retail gas station business, the oil giant plans to unload the 2,200 stations it still owns.
The move may come as a surprise to gas guzzlers familiar with Exxon's brand, but the industry has been gradually shifting away from the retail market for years. Most stations are actually run by distributors, who simply get the gas and logos from Exxon and other big oil companies. BP (BP) expects to be rid of its company-owned stations in the U.S. by the end of next year and Conoco Phillips (COP) is nearly out of the business all together.
Further pressuring pump profits are retail stores looking to use their clout and existing customer base to take business away from traditional station operators. The Journal reports cheap gas sold by Wal-Mart (WMT), Costco (COST) and Home Depot (HD) has further depressed stations' margins.
Gas stations ultimately make most of their income from convenience stores. Their precious pennies of profit on actual gas sales are eaten away by credit card fees, so they depend on customers wandering into their mini-marts.
Professor Depew notes, however, consumers are shifting away from some of these discretionary purchases. Coca Cola (KO) and Pepsico (PEP) are getting rid of their 20-ounce soda bottles, as consumers do less consuming. Tighter credit conditions and the economic slowdown are reducing purchases like candy and soda, so gas station operators may be further squeezed.
The Drive Beyond Oil
Consumers finally balked at $4 gas. Gasoline consumption is falling. And now there is a huge push towards hybrids including chargeable batteries dependent on the electric grid instead of oil from OPEC. Yes, this is just one energy source for another, but at least the US has coal. Perhaps we will see some changes in a push to nuclear as well.
I discussed hybrids yesterday in Toyota's Drive Beyond Oil .
Shrinking margins, a push to electric hybrids, and less consumer discretionary spending makes these businesses an unattractive use of capital for the big oil producers. And in light of the above, it makes "price gouging" accusations look rather absurd.
High prices, low profit, and Congressional Meddling (see Congressional Insanity: Sue OPEC over Oil Prices ) means virtually no one is happy, especially consumers.
At some point however, attitudes towards driving, attitudes about the need for big cars, and attitudes about alternative energy change. That point it seems was $4 a gallon.
By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance, low volatility, regardless of market direction. Visit http://www.sitkapacific.com/ to learn more about wealth management for investors seeking strong performance with low volatility. You are currently viewing my global economics blog which has commentary 7-10 times a week. I am a "professor" on Minyanville. My Minyanville Profile can be viewed at: http://www.minyanville.com/gazette/bios.htm?bio=87 I do weekly live radio on KFNX the Charles Goyette show every Wednesday. When not writing about stocks or the economy I spends a great deal of time on photography. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at www.michaelshedlock.com.
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