March 25, 2011

Dear NJGCA Member:

Here's what you'll find in this edition of the NJGCA Road Warrior, and thank you for reading:

EXECUTIVE DIRECTOR'S MESSAGE: GREETINGS & SAL-UTATIONS!
•Market Place Volatility – The Roller Coaster Continues…and so do the Predictions!

NEWS AROUND THE STATE
•State Senate President looks to trim public worker benefits
•State unemployment rate rises to 9.2% in February
•Judge says Governor’s cuts to education budget are unconstitutional
•Senate bill requiring cash/credit pricing at service stations advances

A SPECIAL MESSAGE FROM BELLOMO FUELS
•Serving New Jersey since 1910 -- Over 100 years of supplying gasoline retailers like YOU!

TRAINING CLASS SCHEDULE
•Let us know what your education needs are today!

POLITICAL PARTICIPATON: THE NJGCA PAC
•Participate in the NJGCA PAC today and help us keep our Agenda rolling in Trenton!

THE MEMBER TOOL BOX
•On the NJGCA Homepage
•Know your Territory Manager!

 EXECUTIVE DIRECTOR'S MESSAGE: GREETINGS & SAL-UTATIONS! 

MARKET PLACE VOLATILITY: THE ROLLER-COASTER CONTINUES…
...AND SO DO THE PREDICTIONS

‘So what happens next?  I haven’t a clue!’  Anyone paying regular attention to our weekly communications will remember those lines form last week.  I said I don’t have a clue what’s going to happen next, and after looking at the market in just the last five days, how could I? 

Last week, we saw rack price drop of approximately 17¢ a gallon in only a few short days.  We were fortunate enough to have that price dip to ease the pain at the pump for your patrons and enable you to grab a bit more margin. 

This week, prices have climbed again and the pain-train keeps rolling as cost climb.  Which to any reasonable person begs the question, ‘What happens next?’

It may not come as a shock, but I STILL DON’T HAVE A CLUE!  While I think I’m better informed than 95% of those watching our industry at the moment, the truth is that no expert can tell you where we’re going exactly.  Rather, they (the ‘experts’) and I (your humble advocate) can only give you a general idea of where we’ll end up IF certain things happen out there.  How is this even helpful? Well, by forecasting these hypothetical situations, we’re able to guestimate what will happen if specific events occur – thereby better preparing you for what lies ahead. 

In this case, however, the problem stems directly from how the price of crude oil (and by extension, gasoline) is calculated from dozens of factors that may affect the price one way or another – but not all of those factors are truly foreseeable.  So for example, major events that occur in geopolitics, the economy, weather obstacles and natural disasters are all things that obvious factor into market prices somehow.

But what about the psychology, gut-reactions, sociology, and human-error factors that get mixed up in there?  Could the events transpiring in Libya, Egypt, and Japan create physiological turmoil in the market as investors worry about future oil production and gasoline refining?  Absolutely!  Could the fact that supply is consistent and demand has remained stagnant for SO long be making speculators second guess their investments?  Perhaps.

The point is that there isn’t one (or even 10) single factors that determine the price of crude and gasoline, but each of these characteristics affect it in some way.  Taken together, it creates one hell of a headache.

Remember, speculators are bidding the price higher since they are worried about oil production in light of violence in the Middle East.  But they aren’t the only game in town.  Other people who are NOT speculators are also dipping their toe in the waters as well.  Who are these non-speculators?  They consist primarily of businesses that consume huge amounts of fuel and are trying to ride out the storm while remaining profitable.  That includes the airline industry, construction outfits, and trucking companies who bid for future gasoline deliveries at slightly higher prices to lock in the rate in anticipation of prices rising even higher down the line.  If high volume users think that the price is likely to skyrocket next month, they will hedge their bet on a price higher than today, but lower than may be anticipated if supplies are interrupted.

From where I sit, and from the reports I’ve been reading, the (short-lived) price dive we experienced last week was yet another sign that the economy just can’t continue to sustain higher fuel prices as demand remains flat.  I still believe that, especially as demand begins to soften the longer these high prices harm consumers.  However, unless natural supply n’ demand forces return to the market and drive out speculators, the long-term outlook will continue to look foggy and uncertain.

Here are some IFs:

IF the geopolitical situation and unrest in the Middle East develops in to any sort of supply interruption of crude oil ANYWHERE in the world, then you can expect the price of crude and gasoline to rise higher and faster than you have ever seen it before.  $5 a gallon?........maybe….PROBABLY!

IF the geopolitical situation and unrest in the Middle East continue without any crude oil supply interruptions, then you can expect the price of gasoline will continue to rise steadily and incrementally for a few months as both oil producers and speculators will take advantage of a fearful marketplace to grab tons of profit.

IF the unrest in the Middle East continues without any supply interruptions, and the price climbs steadily upward as I just described above, there will be a breaking point that influences the market downward.   The natural law of supply and demand will dictate that the price must drop or oil producers will be swimming in their oil.

The economy is still way too fragile for motorists to see obscenely high prices on the pump without finding ways to make more changes to their driving habits.  Demand has remained flat and never recovered from the 2008 price shock.  The 2008 price shock precipitated the economic recession that has crippled America and the world.

Oil producers know that unless the world economy gets stronger, the demand for their product will slow and even decline.

All of this dictates that you must find the courage to increase your margin.   You can not buy inventory at $4.50 a gallon only to sell it for $4.60 a gallon.   With demand decreasing, you will never make up your volume.  YOU MUST INCREASE YOUR MARGIN CONSIDERABLY.  If the motoring public and the media are all going to accuse you of making huge profits, then the least you can do is make it true!

So as you can tell...I still don’t have a clue what actually will happen.

Thanks for listening - See you next week!

Regards,
Sal Risalvato
Executive Director

NEWS AROUND THE STATE

3/24/2011:
State Senate President looks to trim public worker benefits
Steve Sweeney, President of the New Jersey State Senate, has released details on his proposal to bring public worker benefits more in line with their private sector counterparts.  Under the plan, workers who make less money would contribute a smaller percentage of their earnings in the first year of their contribution, but would gradually increase over a seven year period.  Those making significantly more would start and end at a higher rate at the end of the same seven year-adjustment period. 

3/24/2011:
State unemployment rate rises to 9.2% in February
New Jersey's unployment rate rose slightly in February to 9.2% as formerly "discouraged workers" started looking for work again.  The term “discouraged workers” is used to describe individuals who’ve given up looking for work, but are not included in formal statistical information.  The decision of these workers to renew their search for new jobs is partially the reason for this statistical increase. The previous unemployment rate was 9.1% in January.

3/22/2011:
Judge says Governor’s cuts to education budget are unconstitutional
Peter Doyne, a Superior Court Judge appointed as a Special Master by the New Jersey State Supreme Court, has ruled that Governor Christie’s education cuts violate the "thorough and efficient" education clause in the state Constitution.  If the State Supreme Court were to follow the ruling, the Governor would be required to find hundreds of millions in additional state funding, in spite of a massive budget shortfall. Despite the ruling, Judge Doyne acknowledged the State Supreme Court curtailed his inquiry to consider the state’s fiscal crisis.

3/21/2011:
Senate bill requiring cash/credit pricing at service stations advances
A measure codifying laws and penalties for proper cash/credit signage was passed in State Senate earlier this week.  The legislation would essentially take current Weights and Measures regulations, which were developed by the Department with the cooperation of NJGCA Executive Director Sal Risalvato three years ago, will now carry more weight by turning them into state statutes.  The bill must now be considered by the General Assembly.

CLICK HERE TO READ MORE ARTICLES IN OUR “NEWS AROUND THE STATE” ARCHIVE