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Exxon Latest in Gas Station Exodus


Oil giant leaving retail business.


Despite record fuel prices, the painfully large sums we're spending at the pump aren't affording gas station operators an early retirement.

Most operators barely turn a profit on the gas they sell, raking in a whopping 11 cents per gallon, according to The Wall Street Journal. Stations buy the gas from refiners, who purchase crude on the open market or drill for it themselves. Oil prices have been rising faster than refined gasoline prices, so margins have been shrinking for the retail operators.

Exxon Mobil (XOM) announced yesterday it's had it with the measly returns on selling gas to consumers. Following the industry trend away from the retail gas station business, the oil giant plans to unload the 2,200 stations it still owns.

The move may come as a surprise to gas guzzlers familiar with Exxon's brand, but the industry has been gradually shifting away from the retail market for years. Most stations are actually run by distributors, who simply get the gas and logos from Exxon and other big oil companies. BP (BP) expects to be rid of its company-owned stations in the U.S. by the end of next year and Conoco Phillips (COP) is nearly out of the business all together.

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Further pressuring pump profits are retail stores looking to use their clout and existing customer base to take business away from traditional station operators. The Journal reports cheap gas sold by Wal-Mart (WMT), Costco (COST) and Home Depot (HD) has further depressed stations' margins.

Gas stations ultimately make most of their income from convenience stores. Their precious pennies of profit on actual gas sales are eaten away by credit card fees, so they depend on customers wandering into their mini-marts. Professor Depew notes, however, consumers are shifting away from some of these discretionary purchases. Coca Cola (KO) and Pepsico (PEP) are getting rid of their 20-ounce soda bottles, as consumers do less consuming. Tighter credit conditions and the economic slowdown are reducing purchases like candy and soda, so gas station operators may be further squeezed.

Gas prices have reached such heights that demand at the pump has finally started to wane. This means stations have less pricing power, as more customers are choosing to take public transportation or ride their bikes to work. In what may be the ultimate irony of the U.S.' current bout with oil prices, we may see gas stations going out of business en masse - just as the dollars dumped into their coffers bring the consumer to its knees.

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