Circle K and various affiliates of Musket have combined for a 2020-2021 unbranded fuel bid that will encompass 4 billion to 5 billion gallons of product from coast to coast.
With the exception of much smaller regional co-op bids, it is believed to be the first such "RFP Combo" seen in the North American fuel business. While the principle goal of the solicitation may be to achieve the most competitive prices for wholesale product, observers believe that Musket's desire for a "huge short position" is a primary motivation as well. The large short position will give Musket's trading arm more leverage in volatile wet and paper markets as well as derivatives.
The bid was sent out to refiners and resellers last week. Volumes are listed by terminal and most of the supply responsibilities will begin on Dec. 1. Circle K and Musket will oversee two rounds of bidding with the first solicitation due by July 27. At that point, bidders on various portions of the supply will be whittled down to three candidates. A second round will then ensue with supply awards taking place in October.
Prices will be indexed to OPIS, Platts or Argus, but the RFP makes it clear that the "preferred means" for fuel bids is to tie offers to the OPIS Low for scores of specific terminal locations. The buyers will have the option of the contract running through May 31, 2021 or Nov. 30, 2021, sources familiar with the bid tell OPIS.
The supply encompasses nearly 40 states and hundreds of racks. The total annual unbranded fuel used is in excess of 5 billion gallons, although the "contract target" is just over 4 billion gallons. The bid includes all generally recognized blends, including ethanol-free gasoline and various grades of biodiesel.
Volumes are quite variable across the country. For example, the largest city-specific solicitation is for the Twin Cities of Minneapolis. where 520 million gallons of 87-octane E10 will be required. It is assumed that this would include the needs of Holiday stores, one of the acquisitions made by Circle K parent Couche-Tard a few years ago. But there are also locations where smaller deliveries are required. A couple of sites see deliveries of 10,000 gallons or so of ethanol-free gasoline or what is known as "E0."
The contract target number is 20% short of the annual demand projection. It is not clear if the two chains will reserve the right to purchase that extra fuel on the spot market or whether companies winning the supply awards will have that responsibility.
In addition to bids based on OPIS rack prices, prospective suppliers can tie numbers to assessments in the spot markets, in complicated formulae that would include the cost of the "BOBs," ethanol, line space and treatment of Renewable Identification Numbers (RINs). Some locations also call for delivery of top tier specification gasoline. All of the fuel is to be provided FOB the terminal, so either Circle K or Musket will arrange for transport trucks to stations.
If the alliance is successful, it could grow substantially in future years.
Couche-Tard has made it known that it intends to move more locations to the unbranded Circle K flag as various relationships with major flags expire.
Musket, meanwhile, is a subsidiary of Love's, which has been opening new truckstops at a fast pace through the entire 21st century. Musket is the sole supplier to Loves but is one of the more active trading companies in U.S. spot markets, with a substantial blending operation as well as a key role in alternative fuels.
There are over 450 Love's Travel Centers in 41 states, and the company also boasts a fleet of transports in a subsidiary company -- Gemini Motor Transport -- with 750 vehicles. Love's is located in Oklahoma City, Okla., but Musket operates mostly out of Houston, Tedxas.
For Couche-Tard, it is quite a transition. When the Laval, Quebec-based company began rolling up various c-store chains in the U.S., it would typically solicit supply in its seven or so individual regions through traditional means. The size of this national unbranded bid puts it in a class heretofore only occupied by Big Box chain Costco.
Most observers believe that the timing of the solicitation is elegant, since many refiners face struggles to find home for their gasoline, diesel and other hydrocarbons. OPIS has documented many instances in 2020 where refiners have moved product at very aggressive discounts below OPIS Low. Clauses in the RFP give the buyers some leeway should the coronavirus disease 2019 (COVID-19) continue to depress volumes for gasoline or diesel across the country.
--Reporting by Tom Kloza, tkloza@opisnet.com;
--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com
Copyright, Oil Price Information Service
