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Bruce Gress Pilot Travel Centers

Bruce Gress Pilot Travel Centers. “Apparently there is nothing that cannot happen today.” Mark Twain. Pilot Travel Centers Overview. 302 Locations in 40 States and Canada 14,000+ employees Estimated 2008 total revenue: $17 Billion 4.5 Billion gallons/year 304 company trucks

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Bruce Gress Pilot Travel Centers

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  1. Bruce Gress Pilot Travel Centers

  2. “Apparently there is nothing that cannot happen today.” Mark Twain

  3. Pilot Travel Centers Overview • 302 Locations in 40 States and Canada • 14,000+ employees • Estimated 2008 total revenue: $17 Billion • 4.5 Billion gallons/year • 304 company trucks • 4 million miles/month • 1400 truckloads/day • One load of diesel per minute: 24/7/365 • One of the largest fast-food franchisees in the U.S. • Subway’s largest, Wendy’s, Arby’s, McDonalds, Taco Bell

  4. Pilot Travel Centers Overview

  5. Supply & Distribution Structure • Retail pricing • Trucking • Central Dispatch • Supply • Contract supply from refiners (spot & rack) • Spot market bulk purchases, ship • Local rack • Trading • Corporate hedging • Customer programs

  6. Trading • Why we trade… • Hedge / Protect retail margins • Better information, market intelligence • Being active in the market improves our buying • Innovative customer programs • Profit

  7. Trading • What we do… • Lagging retail margins are vulnerable to price trends • Price spikes > low retail margins • Price declines > high retail margins • Typical: Spike up, drift down • “Hedge with a bias” • Trading vs. hedging • Trading: outright play > profit • Hedging: an offsetting position to an inverse gain or loss

  8. Trading • How we trade…(non rogue) • Take what the market gives • NYMEX length • Physical basis • Options • Calls, Call spreads • Puts, Put spreads • Fences, Straddles, Strangles, Strudels • Swaps • Paper Look-alikes

  9. The Three Petroleum “Al’s” Fundamental Factors Geopolitical Factors Technical Factors

  10. The Three Petroleum “Al’s”

  11. What We’re Seeing…Fundamentals: Supply • World oil demand: 2008 = 86.5mmbd, 2007 = 87.4mmbd (EIA) • Growth: 2008 +690,000 b/d, 2009 + 890,000 b/d • OPEC…back in control? • 4Q08: 32.8 mmbd, 09: 32.05mmbd • Excess capacity • Actual vs. Quota • Non-OPEC • 2008: 49.03 mmbd, 2009 growth: +890,000 b/d • Refinery Expansion • U.S., Middle East, Far East • Renewable Fuels • Drill NOW?

  12. What We’re Seeing…Fundamentals: Demand • U.S. Demand • -800,000 b/d, 2009: Below 20mmbd for 1st time in 7 years • Gasoline: • MasterCard: -4.3% y/y, EIA: -2.9% y/y • Miles driven: June down 13 billion miles (most in 25 years) • Diesel: • -7 to -10% (-3 to -4% conservation) • Emerging nations: Strong growth, Subsidies • China: Oil growth +6 to +7.5%, 1H2008: +400,000 b/d • GDP: 2007 +11.3%, 2008 +10.8% • India: Oil growth +5.5%, Subsidies gone mad? • GDP: 2007 +8.3%, 2008 + 8.5% • European Union / OECD

  13. What We’re Seeing…Geopolitical • Russia • Nationalization • Western belligerence • OPEC cooperation • Iran • Anti-Iran economic coalition, perceived threat lessened? • Iraq • Exports climbing…2.5mmbd, 3.0 in 2009, 5.0 in 2012? • Western investment • Venezuela • U.S. enmity, OPEC price hawk • Sell U.S. assets?

  14. What We’re Seeing…Geopolitical • Nigeria • 8th largest exporter in the world • Light, sweet crude • MEND terror attacks / kidnappings • 25-50% of production offline for 2 years • Saudi Arabia • U.S. ally / despotic rule • Iran nemesis • Unilateral increase in exports in June • U.S. • New exploration and production • Comprehensive energy plan? • Elections

  15. What We’re Seeing…Technical • Chart watching… • What about fundamentals? • Prominent role in fund decision making • 6 ½ year Wave 3 is completed (2002-2008) • $18/bbl > $147/bbl • Head fake: summer of 2006 – summer of 2007 at almost $80/bbl • Wave 4: until 11/09 • $82/bbl? • Wave 5: ?!

  16. Trading In The Old Days • Analysis of fundamentals: • Inventory trends • Seasonal physical basis plays • Refinery operations / disruptions • PADD arbitrage • Historical crack values • Demand forecasts • U.S. only • What worked? • Physical basis differentials • Front to backs

  17. Trading In The New Days • The game has changed: Funds • Unprecedented investment > $250B • Across most commodities • Coal +150%, Gold +65%, Platinum +80%, Copper +95%, Lead +95%, Corn +140%, Soybeans +105%, Wheat +80% • Direct, swaps, derivatives • Flight from other investments as inflation hedge and high returns • Hedge for weakening US Dollar & interest rates • Circular spiral: Interest rate cuts > Weakening USD > Higher oil prices > Economic worry > Interest rate cuts

  18. Trading In The New Days

  19. Trading In The New Days • Economist or Trader? • Long term view • Short term fundamentals become trivial • World view • It’s not just the U.S. anymore • Volatility • Momentum players • Get on the bus or under it • Greater risk…greater return • Volatility has forced us to short term market predictions • Could oil go to $50? $100? $150? $200+?

  20. What We Do…Examples • Upward bias, strong retail margins • Length • Fences (with put at weak margin level) • Downward bias, strong retail margins • Length with put insurance • Calls • Upward bias, weak retail margins • Calls, call spreads • Downward bias, weak retail margins • Out of the money calls • Get the hell out of the way and don’t make it worse • Neutral bias, weak retail margins • Covered straddles (in high volatility) • Out of money calls, call spreads • Front/backs, up/downs, cracks, physical basis

  21. What You Can Do • Understand hedging • Understand what you’re trying to accomplish • Does it work for the budget? • Lock in fuel price? • Float with some insurance? • Understand the risk • Play “what if”. Have a game plan. Exit strategy? • Never say “it could never do that” • Enter the market prudently • Know your counterparty • Ask questions…monthly average or strike price? Will there be margin calls? Can I reverse the deal?

  22. QUESTIONS? Bruce Gress Pilot Travel Centers gressb@pilottravelcenters.com

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