Fuel Oil Dealers Industry Trends

Transportation Outsourcing

High Consumer Prices

Many distributors outsource gas hauling from the rack to customers, in part because of the liability associated with hauling gasoline. Many distributors desire to focus on the core business of buying and selling gas, as well as other related products.

Consumer prices for fuel oil and LP gas have hit record highs due to huge commodity price increases for crude oil. Consumer prices for most fuels grew almost 70 percent between 2003 and 2006, with fuel oil prices increasing 80 percent and LP gas prices increasing 50 percent; commodity prices for crude oil more than doubled. Some customers have switched to other energy sources, including natural gas and electricity, due to high oil and LP gas prices.

Supplier, Distributor Consolidation

Reduced Demand for Heat

Major oil companies that supply distributors are consolidating to streamline their own distribution channels. The result is fewer distributors in each geographic territory. Contracts with suppliers, which typically last three to ten years, often require minimum purchase levels, causing some distributors to merge to secure higher volume.

Growing interest in conservation has resulted in efforts to use less heat. Better insulation and improved heating equipment have reduced fuel consumption, and some customers simply turn down the thermostat to conserve. Anticipated advances in heating technology should continue to reduce demand for heat and fuels.

Direct Distribution from Rack to Customer

Declining Employment

Traditionally, distributors maintained petroleum inventory in bulk plants at their facilities. Onsite storage isn't as common, as distributors typically pick up gas from the rack (terminal) and haul it directly to the customer.

Shrinking and stagnant market conditions for fuel oil and LP gas, combined with acquisition-related cutbacks, have resulted in a long-term decline in industry employment, which decreased over 15 percent between 1997 and 2006. Companies must buy other dealers to grow, and acquisitions typically result in workforce reduction.

Wholesalers Participating Less in Convenience Store Operations

Drastic Increases in Imports

Fewer distributors own and operate convenience stores. Many distributors enter lease arrangements wherein they pay store operators a percentage of profits in exchange for handling sales at the pump.

Imports of crude oil and natural gas, the key products used to produce fuel oil and LP gas, increased more than 500 percent and 300 percent, respectively, between 1998 and 2006. Although the increases were driven partly by price hikes, crude oil imports are more than half of the US market, and dependence on foreign fuel sources has been controversial. While the majority of fuel oil imports come from Canada, Mexico, Nigeria, and Venezuela, imports from politically unstable countries, such as Iraq and the Congo, are growing rapidly.

Product Line, Brand Diversification