THEN (December 2024): “Sharply Lower Wholesale Prices Boost Retail Gasoline Margins”
NOW (January 2025): “Margins Stumble into the New Year, More Weakness May be on Tap”
Source: OPIS Retail Fuel Watch (1/9/2025)
You Have a Problem
The robust profit margins gasoline retailers often enjoy in late fall and early winter can deteriorate as spring arrives. The Q1/Q2 margin squeeze does not occur every year, but pressures on gross profits between Christmas and Memorial Day can be severe.
Why Does This Happen?
Retail gasoline profit margins tend to be squeezed when wholesale prices increase – retail prices rise more slowly as customer resistance to the higher posted price grows.
Refineries typically schedule maintenance periods two times a year, early spring and late fall. Logically, during these times, refinery output is curtailed. Less supply tends to drive the wholesale market price higher.
Gasoline retailers are faced with the dilemma of losing margin or losing volume. The spring margin squeeze is driven by the combination of rising gasoline demand at the same time refinery maintenance reaches a seasonal peak.
What Can You Do About It?
Gasoline marketers can deploy seasonal hedging strategies for the months in which they anticipate the greatest pressure on their profit margins. The fixed cost of the hedge is affordable and known upfront. The hedge gains in value if wholesale gasoline prices increase, helping to offset the effects of the ‘Seasonal Squeeze’.
What is Involved with Hedging?
Hedging is a risk management strategy used to limit the probability of loss from unknowable fluctuations in the price of a commodity.
Hedging with financial instruments does not change how you purchase your physical gasoline.
The goal of hedging is to defend your profit margin against energy price volatility and allow you to concentrate on growing your business.
Next Steps
Gasoline marketers from California to the Carolinas have successfully employed hedges to protect retail profit margins. POWERHOUSE works hand-in-hand with our clients.
The process of establishing a hedging program requires careful planning to make sure the appropriate instruments are deployed. We invest the time to help our clients measure the extent of their potential risks before establishing any hedges.
We guide our clients through every step of the process – from design & implementation to settlement. Let’s talk about what’s right for your company.
Disclaimer
This material has been prepared by a sales or trading employee or agent of Powerhouse Brokers LLC and is, or is in the nature of, a solicitation. This material is not a research report prepared by Powerhouse Brokers LLC. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.
DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION.
The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Powerhouse Brokers LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades
