Danny Nordman owns three gas stations in the West Texas metro area of Midland-Odessa. And with gas prices soaring to record levels, it would be easy to think Nordman is just sitting back watching the money roll in.
Actually, he’s watching it roll out.
“We’ve raised the price of fuel as little as we could [and] absorbed the price increases to cut into our profits,” he said. “On Friday, the wholesale price went up 21 cents. … Our price at the pump went up 11 cents.”
And it wasn’t the first time the math went in the wrong direction.
“We have not made profit on fuel in probably nine days. We’ve sold fuel essentially at cost, and the thing about selling something at cost is that it’s never taking into account the incidentals,” he said, such as credit card processing fees and wear and tear on his equipment.
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“It’s a popular misconception that store owners are all wealthy,” Nordman said. “Your fuel is a volume thing. You’ve got to sell a lot of fuel to make a little bit of money off it.”
“A little” as in 15 cents a gallon on average, according to the National Association of Convenience Stores. About 80 percent of the gas purchased in the U.S. is sold by convenience stores like Nordman’s.
The companies making the most money when oil prices go up tend to be the ones that do the exploration and extraction, said Peter McNally, an energy analyst with the research firm Third Bridge. “Retail gasoline typically has the lowest margins.”
But pulling the oil out of the ground is just the first step and just one component of the cost. Crude accounts for roughly half the cost of a gallon of gas. When the price of oil is at $100 a barrel (which is 42 gallons), crude accounts for about $2.40 per gallon. The oil is then refined into gasoline and transported to the gas station, which adds more to the cost. Next comes the government. The price drivers pay at the pump includes about 60 cents per gallon, on average, for federal and state taxes.
Station owners have to refill their underground storage tanks fairly often, so they have to sell gas at a price that will cover the cost of their next order. “The problem is … it doesn’t matter what the 10,000 gallons of fuel costs in the ground. It matters what it’s going to cost to replace the next load,” Nordman said.
And with the uncertainty around the Ukraine war creating wild swings in the price of oil from day to day, price-planning is tough.
"If there was a time to not want this situation — from a purely gas price standpoint — this is the time,”said Jeff Lenard, a spokesman for the National Association of Convenience Stores.