Petroleum Wholesale Distribution
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Industry Overview
The US petroleum wholesale distribution industry includes about 5,700 companies with annual revenue of about $750 billion. Revenue can vary significantly from year to year with the price of crude oil. Major companies include Global Partners, Mansfield Oil, SemGroup, and World Fuel Services. The industry is concentrated: the 50 largest companies generate more than 70 percent of revenue.
Competitive Landscape
Demand for petroleum comes mainly from auto and truck use and home heating. Profitability is determined by the efficiency of operations. 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. Large wholesale purchasers generally can negotiate bigger price discounts from suppliers and spread the cost of bulk holding facilities over a larger number of gallons.
An economic recession or dramatic price fluctuations, such as those that occurred in the first half of 2008, reduce demand for gasoline. Concerns about US dependency on foreign fuel and environmental issues also impact demand. Any decline in demand can adversely affect petroleum distributors.
Products, Operations & Technology
Products include gas (more than 50 percent of volume), diesel fuel, propane, heating oil, jet fuel, kerosene, and lubricants. 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.
About 60 percent of 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. 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. About 40 percent of distributors sell heating oil.
Some distributors are "quasi-wholesale" because they also sell gasoline at retail. Wholesalers may own and operate convenience stores or other gasoline operations. Major oil companies own less than 10 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 convenience stores, then sharing in the gasoline profits under what are called special purpose leases.
