SIC 5172
PETROLEUM AND PETROLEUM PRODUCTS WHOLESALERS, EXCEPT BULK STATIONS AND TERMINALS



This industry class consists of wholesale distributors of petroleum and petroleum products (except those with bulk liquid storage facilities). Industry products include butane gas, fuel oil, aircraft fueling services, liquefied petroleum gases, gasoline, kerosene, lubricating oils and grease, and naphtha. Petroleum brokers are also included.

Companies that wholesale petroleum and petroleum products from bulk liquid storage facilities are in SIC 5171: Petroleum Bulk Stations and Terminals.

NAICS Code(s)

422720 (Petroleum and Petroleum Products Wholesalers (except Bulk Stations and Terminals))

Industry Snapshot

According to statistics compiled by the U.S. Census Bureau, the number of firms engaged in the wholesale distribution of petroleum and petroleum products has been on a steady decline since the early 1980s. By 2001, approximately 2,680 establishments operated in this industry. In 1982, there were 6,287 such firms, and ten years later the ranks had thinned to 3,700. The average wholesale distributor sells over 11.5 million gallons of petroleum each year.

Organization and Structure

From an overall petroleum-industry perspective, the transactions between wholesalers and the retail level are among the least efficient components of the supply chain, due to the sheer number of transactions and their fixed order and delivery costs, according to National Petroleum News. As a result, the cost per transaction tends to be higher. Thus the wholesale channel was a major target of the industry's efforts at consolidation as an attempt to boost overall efficiency and cost-savings.

Moreover, the majority of wholesalers remained relatively small and thus lacked the economies of scale to afford high-level electronic data and tracking equipment that would more thoroughly and systematically track their activities through the supply chain. As the petroleum industry consolidated and moved toward integrating supply chains among all trading partners, from the refinery stage to retail, the pressures on distributors were expected to grow.

As of 2004 this industry was served by the Society of Petroleum Engineers (SPE), which conducted extensive research into methods of transport for oil and gas, among many other endeavors. The American Petroleum Institute (API) and the National Petroleum Council (NPC) were also crucial to industry players.

Current Conditions

The National Petroleum News reported in 2001 that 175,132 operations—including gasoline stations, truck stops, convenience stores, and marinas—were engaged in the sale of gasoline in the United States. Although petroleum delivery trucks sometimes shipped directly from the refinery to the gas station, most refineries shipped their products via barge or truck, or pumped through underground pipelines, to a bulk terminal, at which the trucks were filled for delivery to the stations' underground storage tanks, from which consumers drew the gasoline that filled their automobiles.

The petroleum industry was in the midst of a major consolidation wave in the early 2000s, as major oil companies restructured and joined forces to boost their efficiency and leverage. This was expected to squeeze the ranks of wholesale distributors further still. Major oil

SIC 5172 Petroleum and Petroleum Products Wholesalers, Except Bulk Stations and Terminals

firms, meanwhile, enjoyed record profits in the early 2000s, a result of high energy prices and cost-cutting measures resulting from the merger activity. The price of crude oil and natural gas, on a roller coaster in the early 2000s, were on the ascendancy entering the middle of the decade. Indeed, between late 2002 and late 2003, the price of oil nearly doubled.

The wholesalers that manage to survive were expected to be those with the greatest technological sophistication, those with strong relationships with the major oil companies and retailers, and especially those that can bolster their distribution operations with value-added services. In an increasingly consolidated industry obsessed with streamlining its overall supply chain, the role of the traditional wholesale distributor was anticipated to be increasingly open to reinterpretation, and so wholesalers would face pressure to broaden their focus in order to keep themselves viable and attractive in the eyes of the major oil companies.

Industry Leaders

Flying J Inc., based in Ogden, Utah, was the leading distributor of diesel fuel in the United States, as well as a major truck-stop operator. Flying J employed 11,500 in a network that boasted over 160 Flying J Travel Plazas in over 40 states and in Canada. The firm also operated its own refinery and maintained its own oil and gas reserves. Flying J raked in revenues of $4.6 billion in 2003, representing growth of 9.5 percent over the previous year.

A subsidiary of the Russian oil company LUKOIL, Getty Petroleum Marketing Inc., of East Meadow, New York, was a major distributor of motor and heating fuels via some 1,300 service stations as well as its own petroleum and exchange terminals, primarily in the eastern United States.

Texaco Oil Trading and Supply Co., a subsidiary of Texaco Inc. based in White Plains, New York, was another major player in this industry.

Further Reading

Bevers, Gary. "The Good, Bad, and Ugly of Major Oil Consolidation and the Downstream Supply Chain." National Petroleum News, December 2002.

Bogoslaw, David. "Propane Demand Grows as Margins Shrink for Dealers." Wall Street Journal, 19 March 2003.

Reed, Stanley, and Stephanie Anderson. "No Tigers in This Tank." Business Week, 14 January 2002.

Strauss-Einhorn, Cheryl. "Gassed Up." Barron's, 27 May 2002.

"Study Shows Distribution Industry Facing Change." National Petroleum News, September 2001.

U.S. Census Bureau. Statistics of U.S. Businesses, 2001. Washington, DC: GPO, 2003. Available from http://www.census.gov/epcd/susb/2001/us/US42272.HTM .

Vavra, Bob. "The Urge to Merge." National Petroleum News, June 2000.

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