Daniel Gross

Soaring Gas Prices Produce Business Winners — and Losers

Every economic development produces winners and losers. A trend that is a kiss of death for some businesses may prove to be the gift of life for others. That's certainly the case with the recent rise in the price of oil, which was pushing $107 per barrel on Tuesday.

Winners

The oil complex. ExxonMobil may have lost the mantle as most valuable U.S. company to Apple, but its stock (here's a long-term chart) has been doing well, and the inexorable rise of oil has pushed its market capitalization above $400 billion. High crude prices mean large profit margins for companies that extract oil. And oil production has been on the rise. The Energy Department's data show that more crude was extracted in the U.S. in 2011 than in any year since 2003. What's more, $100-per-barrel oil places huge incentives for the search for new sources. If you own an oil rig, or know how to operate one, or have a friend who does, these are good times.

North Dakota. Oil booms tend to be localized affairs. But in states with small populations, the effects of a resource boom can reach far and wide. As I reported last summer, the exploitation of the Bakken Shale in North Dakota has turned the Peace Garden State into a bizarro version of the economy at large, in which everything is opposite. Oil production has soared in recent years, with the state's wells producing 16.6 million barrels in December 2011 alone. The cash is spilling across the state. North Dakota has created a state legacy fund to prepare for lean years and boosted spending on higher education; the state boasts an unemployment rate in the 3 percent range, along with a healthy housing market.

The efficiency complex. When push comes to shove, Americans are really good at figuring out how to do more with less, and how to get more for their money -- and then turning those ideas into businesses. When oil soars, websites such as Gasbuddy.com, which points users to cheap gas in the area, experience a surge in traffic. And firms like Propelit, whose software enables trucking fleet managers to monitor the driving habits of employees (and provide incentives for them to drive more efficiently), or FuelClinic.com, which coaches consumers on ways to drive more efficiently, find that their sales pitches go over much better.

Automakers. Yes, that's right. Higher gas prices make it more expensive to operate a car. But very expensive gasoline can also help spur sales. In recent years, there's been a quiet revolution in the efficiency of vehicles sold in the U.S., thanks to the proliferation of hybrids, clean diesel vehicles and continuous improvement on the old-fashioned combustion engine. Cars sold in the U.S. in 2011 get an average mileage of 33.9 miles per gallon, up from 31.2 in 2007 and 29 in 2002. Given the choices in the marketplace, purchasing or leasing a new car is a guaranteed way of saving on an annual gas bill. And with the typical car on the road about as old as Billy Crystal's Oscar jokes, more and more consumers are flocking to car dealers. Several years ago, high gas prices would have disproportionately benefited foreign carmakers. No longer. On Monday, Ford announced that sales of the Focus, which gets 40 miles per gallon, were likely to top 20,000 in February, up from 14,400 in January, and nearly double the total from February 2011.

Losers

Wal-Mart. Analysts largely miss the boat when they conclude that higher gas prices will eat into all retail spending. A hedge fund manager whose commute consists of a few miles round trip from his home in the back country of Greenwich, Connecticut, to the town's train station won't blow any less dough at Tiffany's or The Palm if gas goes to $5 per gallon, or even $10 per gallon. The millions of workers up and down the eastern seaboard who commute by train, bus, subway, boat or bike are similarly immune from spikes in oil. The Whole Foods on Houston Street in Manhattan won't sell any less wild salmon or precious cheeses due to higher gas prices. But if you're a retailer who caters to people with limited incomes who generally rely on cars for all their transport, and who must travel long distances to get to the store — well, that's another story. For this segment of the population, the cash for groceries and gas tends to come out of the same pool. An extra $10 per week spent at a Mobil station in Kansas is likely to result in $10 fewer spent at Wal-Mart.

Airlines (and their passengers). U.S. airlines have continued to struggle even as the economy expands, in part because fuel is a very large fixed cost that airlines are largely powerless to control. When fuel prices rise, airlines face the unenviable choice of passing the higher costs through immediately to their customers (thus alienating them further), or eating the costs, thus sapping their profits. Companies can protect themselves against spikes in the price of oil by hedging. But that costs money, and involves the use of derivatives. This great chart from Bloomberg on fuel hedging shows that, in the fourth quarter of 2011, American Airlines hedged only 52 percent of its consumption while JetBlue hedged 45 percent of its consumption.

The Kwik-E-Mart. Consumers often wind up expressing their rage over high gas prices at gas stations. But the convenience stores/gas stations that gobble up large chunks of our paychecks are also victims. When gas gets very expensive, people drive less and buy smaller amounts of gas. That's bad for business. And as the National Association of Convenience Stores (NACS) reminds us, more consumers tend to drive off without paying when gas nears $4 per gallon. Also, as NACS reports, the real money at gas stations lies not in the sale of low-margin toxic stuff you put in your gas tank, but in the sale of high-margin toxic stuff you put in your mouth: soda, slushies, nasty hot dogs. As NACS notes: "Motor fuels sales accounted for more than two-thirds of the convenience store industry's sales in 2010 (66.9 percent). However, because of low margins, motor fuels sales contributed less than one-third of total store gross margins dollars (26.4 percent)." When you have to pay $60 instead of $50 to fill up, you're less inclined to shell out for Doritos.

Refiners. High oil prices are great for the upstream components of the business (i.e. crude extraction), but aren't so great for the downstream components, like refining, distribution and retail. Oil refiners perform best when the price they pay for crude oil is low and the demand for finished product is high. The difference between the two is known as the cracking spread. But when crude prices rise sharply, it means refiners pay more for their key input as local demand tapers off. And that tends to compress cracking spreads. (Here's a Bloomberg chart of cracking spreads.) As this one-year chart of the big refiner Valero shows, rising crude prices don't necessarily produce a gusher of profits for refiners.

Daniel Gross is economics editor at Yahoo! Finance.

Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com.

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