The challenges of the 99p fuel price

Peter Cattell
September 25, 2020

Back in 2005 I was handed the reins of running a 500 site retail fuel operation at a major supermarket. Most of my working life has been spent in the commercial buying arena. Taking on fuel was a new challenge with some significant differences to what I had been used to – namely, a stable supply chain, relatively stable cost prices, national product pricing, decent gross margins, infinite stockholding capacity, VAT was the only tax, low levels of legislation and environmental considerations were relatively minor. Taking on fuel changed my world considerably.

It was a baptism of fire (literally!) – costs were rising, cost volatility was extreme, environmental taxes were being introduced, margins were wafer thin and to top the lot on the morning of Sunday December 11th 2005 a major supply terminal in Hemel Hempstead to the north of London blew up. Following several panic buying episodes & a major fuel contamination in early 2007 I thought I’d seen everything in such a short space of time. How wrong was I?

In 2008 the oil markets went on a “bull” run culminating in a peak crude price of $145/barrel and the customer products (gasoline & diesel) followed suit.

Managing an ever-rising fuel price & suffering the wrath of customers whose disposable income was being consumed by the cost of fuel was a new challenge. Price was one thing – an operational challenge was rolling towards me like a tsunami. Perhaps an over dramatization but that’s what it felt like at the time.

At that time our price totem poles only had the facility to display 3 digits – 99.9p/litre was the max we could go to. Not a concern when crude was in the $60-$100/barrel range and the exchange rate was £1 = $1.90. Then the world changed – the perfect storm of economies over-heating coupled with an exchange rate revaluation. Macro-economic shifts had a big impact on my daily working life.

As I and my team were watching the fuel price rise and the exchange rate change against us we suddenly realised that having to move above the 99.9p/litre fuel price was becoming a reality. Suddenly things turned a little more frantic – phone calls to the property team ensued. Help!! I need to be able to push on over 99.9p to protect some level of profit. The first question was “When?” – the only answer I could give was “Soon!” given the volatility of the oil price. The next question was “How quickly can we change the pole signs to take 4 digits?” Greeted by silence when the penny dropped that we were talking about 500 sites – cost of such a change was one thing, physically making the change was another!

Together with my Senior Buying Manager we worked out that the gasoline/diesel price would need to rise by $200/tonne before we would have to breach the magic 99.9p/litre price at the pump. We looked at each other and concurrently uttered “Never - it can’t do that in the next few days!”

How wrong were we? The next day Platts rose $100/tonne, the following day $50/tonne and the next day another $50/tonne. This was now real. I never liked the question “What is the oil price going to do in the future?” because with so many factors involved it’s an unfair question and this was a perfect example of why I tried not to give an answer. 

So, what happened next?

As fast as the market rose it fell and as we bought on average of the week lagged pricing we never actually got to the point where we needed to push on above the magic number of 99.9. We dodged the bullet – just! It did buy some time to properly plan and organise the ability to go above 99.9p at some point in the future.

The whole episode taught me a number of lessons – never assume, plan for the worst and hope for the best, be aware of your numbers at all times and say the odd prayer or two. The first 3 continue to be my mantra, whether my prayers had any influence I don’t know but I did have a big sigh of relief.