Investment banks are expressing confidence in the strength of U.S. retail fuel margins this year. According to analysts at Raymond James, the average gross rack-to-retail margin in the U.S. was 37 cents per gallon (cts/gal) in January, based on data from OPIS. Although this is a slight decrease from December’s 42 cts/gal, the drop is primarily attributed to recent wholesale price increases.
Compared to January 2023, the January average represents a notable 31% increase – a year that Raymond James considers more typical for margin trends compared to the volatility experienced in 2022 due to fluctuating wholesale prices.
“While there may be some weekly and monthly fluctuations in fuel margin trends based on crude oil movements, we maintain our belief in structurally higher fuel margins,” states Raymond James.
Similarly, Jefferies Group, in its review of Casey’s General Stores’ earnings, acknowledged that current fuel margins are sustainable and expects them to remain in the range of 40 cts/gal.
Raymond James also anticipates that the U.S. convenience store industry will enjoy a year-to-year margin increase throughout 2024. The bank attributes this projection to ongoing cost pressures from labor, declining tobacco sales, the rise of electric vehicles, and investments made in store operations. Furthermore, the bank notes that fuel volumes are still below pre-pandemic levels, suggesting that smaller operators will need to maximize their margins at the pump.
Raymond James emphasizes that larger public operators tend to outperform the industry average due to their lower break-even points and more sophisticated pricing models.
Reporting by Denton Cinquegrana, Editing by Jeff Barber