Petroleum Wholesale Distribution
Buy This Industry Report
Get more in-depth industry information with a First Research industry report containing business challenges, trends, executive insight, call prep questions, and so much more!
Get Information Now
Rest assured, your information will not be shared with anyone else (see our privacy policy for details).
Industry Overview
The wholesale distribution of petroleum products in the US includes about 5,300 companies with annual revenue of around $300 billion. Revenue can vary significantly from year to year because the price of crude oil can vary by 50 percent within a year. The industry is highly concentrated: the 50 largest companies hold more than 70 percent of the market. A typical wholesaler has annual revenue between $1 and $25 million.
Competitive Landscape
Demand for petroleum comes mainly from auto and truck use and home heating. Profitability is determined by the spread between purchase price and selling price and on the volume of product. Most companies are local and operate a single "bulk station" (tank farm), although the large companies may operate a dozen facilities and serve several states. There are economies of scale because large wholesale purchasers generally can negotiate bigger price discounts from suppliers, and because the fixed cost of bulk holding facilities can be spread over a larger number of gallons.
Products, Operations & Technology
Products include gas, diesel fuel, propane, heating oil, jet fuel, kerosene, and lubricants. Gas accounts for 60 percent of volume, diesel fuel for 20 percent, propane for 7 percent, and heating oil for 5 percent. Diesel fuel and heating oil are collectively called "no. 2 distillates." Petroleum distributors, also called jobbers or marketers, buy petroleum products from oil refiners and resell them to residential, industrial, or commercial consumers like gas stations, convenience stores, trucking companies, and farming operations. Large retail customers often bypass wholesalers and buy directly from oil companies.
Wholesale distributors operate "bulk plants" (tank farms) from which they distribute product to customers. They may also distribute products directly from their suppliers' "rack" or regional pipeline terminal; about 50 percent of all gasoline is distributed straight from the rack. Improvements in distribution technology allow some distributors to deliver a greater volume of gasoline directly from the rack, avoiding the risk and expense of holding their own inventory. Distributors usually own and operate a fleet of delivery trucks, although outsourcing the transportation from rack to customer is common. The average wholesaler sells approximately 12 million gallons of petroleum products per year. About 60 percent of distributors sell both motor fuels and heating oil.
Some distributors are "quasi-wholesale" because they also sell gasoline at retail. Wholesalers may own and operate c-stores or other gasoline operations. Major oil companies own less than 20 percent of all service stations in the US; the rest are owned by independent owners and petroleum distributors. Some distributors retail petroleum by supplying and owning the pumps, underground storage tanks (USTs), and other equipment used by independent c-stores, then sharing in the gasoline profits under what are called special purpose leases.