Published on March 27th, 2020 | by Daniel Sherman Fernandez0
Will Fuel Stations Survive During COVID-19
New fuel station owners who have high property mortgages will be the hardest hit.
We spoke to three different fuel brand station owners we know and this is the information we got from them.
To start, this situation applies to only Malaysian fuel station owners as the price mechanism for fuel sales in Malaysia is fixed by the Malaysian government.
With global demand for fuel reducing and the low prices coming from the oil producers, it looks like cheap petrol and diesel will continue to be sold in Malaysia in the next few months, or even a year.
Fuel Prices Today
Currently, the price of RON95 is at a low RM1.44 which is a big RM0.33 cents drop and RON97 fuel has dropped by 0.36 cents to a low RM1.74. The selling price of diesel is now higher than petrol (probably for the first time ever in Malaysia) at RM1.75 which is a drop of just RM0.12 cents.
Fuel Retailers Pricing
This is great news for Malaysian car owners (even though they have to sit quietly at home and not drive around for four weeks) but this is bad news for petrol retailers. The current fluctuating fuel price system is putting a lot of pressure on fuel station owners.
When a fuel tanker comes to deliver fuel, station owners need to pay anywhere between RM40,000 to RM45,000 to the fuel company and then with a profit margin of just 6-8 percent on every liter sold they need to scramble to make up the price difference when the price falls in between fuel tanker deliveries.
For example, two weeks ago when the fuel tanker delivered fuel they paid a high price, then the selling price the next few days drops by RM0.33 cents, but they already paid a high price for the RON95 fuel sitting in their underground tanks.
Change In Price
Yes, these price fluctuations also work the other way. When the price of fuel goes up, what fuel that is sitting in their underground tanks will give them a higher profit margin. However, with the lockdown, fuel sales have dropped by a massive 70-75% (depending on location) and the predicted slowing down of the economy after the lockdown might see a slow rise in overall sales. With a 6-8 percent profit margin on every liter of fuel sold, fuel station owners need to cover their fixed overheads which depends on the area (neighborhood) they are located.
All stations have an accounts clerk (or the owner’s wife) in the office and two staff in the retail shop to look after sales. Then there are the two to four foreign workers outside. Some long time fuel station owners have already paid in full for their property so they are in a better financial situation. For new fuel station owners, like one of my friends, fixed overheads right now are a big worry and soon they will not have enough funds to cover buying fuel. Which means a station closure or just keeping the retail shop open to cover staff costs.
Car Wash & Restaurant
For fuel station owners who invested in a car wash and car servicing, they are also seeing zero customers during this lockdown and their staff salaries need to be paid.
Fuel stations with fast food outlets and restaurants attached to them can still keep running as the rentals received pays for overheads and the business of selling fuel is added income for the station owner. These are the fuel station that will be able to weather this economic storm that is brewing.