Oil prices are forecast to increase fairly evenly in the five years to 2018
New York, NY--December 26, 2013: Driven by fluctuating oil prices, revenue for the Fuel Dealers industry has been volatile over the five years to 2013, averaging a decline of 2.2% per year to total $43.3 billion. Revenue is primarily influenced by the price of fuel, especially propane and heating oil, which are correlated with crude oil and natural gas prices. “Prior to the recession, revenue grew strongly through 2008, as strong economic growth boosted fuel prices,” according to IBISWorld Industry Analyst Antal Neville. However, in 2009, sluggish sales volumes and lower fuel prices eroded these gains. Nonetheless, a subsequent rebound in prices and cold weather conditions, which spurs demand for heating fuels, helped revenue recover to 10.7% in 2011. Yet, an expected drop in fuel prices for 2013, due to slow global economic growth, will reduce revenue to an estimated 3.3% over the year.
While the recent upswing in the economy helped the majority of industry operators, especially larger players, those that have implemented wholesaling processes into their business models have benefited more substantially over the past five years. Although fuel dealers can usually pass fuel cost increases on to consumers, huge price fluctuations can disrupt downstream demand. Players that serve small residential markets, for example, can experience declining revenue if adequate households switch to other fuels, such as electricity or natural gas. In response to price volatility, many industry operators consolidated to handle increased fuel volume and distributed these products via wholesale strategies. By handling more volume, companies can draw up long-term supply contracts, guaranteeing purchases at a certain price point. “In an environment that is beginning to favor larger players, mergers and acquisitions are common,” says Neville. Consequently, the number of establishments has declined an annualized 1.1% in the five years to 2013.
Looking ahead, revenue will remain highly sensitive to trends in oil prices, over the five years to 2018. Oil prices are forecast to increase fairly evenly during this period, benefiting industry operators. Higher natural gas prices will reduce competition as well. However, increasing economic activity worldwide will underpin the rise in oil prices, despite some growth in output from the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers.
For more information, visit IBISWorld’s Fuel Dealers in the US industry report page.