What do you do when the old rules no longer apply in a market you’ve successfully operated in for 50 years or more? Those are the conditions which Mirabito Fuel Group, Reese-Marshall and Blueox Corporation faced in 2008 when the price of oil went through the roof.
“Volatile with a capital ‘V,’” is how Mirabito Fuel Group President Joe Mirabito describes last year’s energy market.
“2008 was probably the most challenging year our organization ever faced,” said the man whose family has been in the region’s energy business since 1927.
The price of oil had always been based on the basic laws of supply and demand, Mirabito explained. But that changed rapidly when speculators began buying and selling oil futures on the Commodity Futures Exchange.
Within 20 months, the price of a barrel of oil spiked 57 percent, and then dropped 61 percent, he said. And not because of the actual supply of or demand for the commodity itself.
“2008 went against economics 101,” Mirabito said. “There was no transparency in the energy market.” The market’s new-found volatility forced the company president to make tough decisions.
“Our biggest concern was to keep our customers supplied,” he explained. Because high prices in the energy market before had always meant a scarcity of supply, Mirabito made the decision to purchase when oil futures were near their highest.
“We have to balance our supply commitments to our customers with our cost,” he said. While in hindsight this may have meant higher prices for Mirabito customers, he said he is still confident that the choices he made were for the best.
“At the time, we did the right thing,” Mirabito claimed.
The company did what they could to mitigate the effect on its customer base.
“We had to absorb a good share of that,” he said. But they could only absorb so much; the rest fell to consumers.
“We worked really hard to prepare for this winter,” Mirabito said, speaking of the home heating oil portion of the business. The company encouraged its customers to participate in its cap program, which “is supposed to take that volatility out of” the equation, Mirabito explained. According to the CEO, customers who participate in the program are paying only slightly more now than they were at the same time last year.
“We feel good about that,” he said. “You’re always trying to do what is best for your customers.”
The company took a great deal of criticism over gasoline prices at its pumps across the region, which some drivers felt were arbitrarily higher in some areas than others. Mirabito attributed these price differences to a variety of factors including taxes, credit card processing costs and competition.
“It all has to factor into your cost structure,” he explained.
One of the most significant are taxes which make it difficult to compare prices on a county by county basis, let alone state by state.
“Taxes have a significant impact on the energy industry,” he said, one which customers don’t always realize.
Then there are credit card processing fees. In markets where a larger percentage of customers use credit cards, it was sometimes necessary to charge a higher per gallon price for gasoline, he explained, to cover the percentage charged by the card companies for each transaction.
“We’re distributors, and we have to make it on efficiencies,” said Mirabito.
In certain markets, he continued, competitors were selling cheaper ethanol blends which gave them the price advantage. Unfortunately, for drivers, these blends yield lower miles per gallon. Mirabito also faced price wars in some markets, something he said “makes absolutely no economic sense.”
Political figures were opening critical of what some said was “zone pricing,” but according to Mirabito, they may be missing the larger picture.
“Elected officials are always calling foul,” he said. “But they really haven’t done anything about the speculation.”
Diesel fuel has been another concern, but Mirabito cautioned that it is impossible to compare the very low sulfur product on the market today with the diesel of yesterday.
Under the name Mirabito Energy Products, the company has been investing in biodiesel for the last five years. “We’re into the alternative products. We invest in that every day,” Mirabito said.
The company purchases its biodiesel from a Pennsylvania manufacturer and blends it at a facility in Sydney. They currently sell two blends, a B5 (5 percent biodiesel, 95 percent petrodiesel) and B20 (20 percent biodiesel, 80 percent petrodiesel), by delivery as well as from one retail location in Oneonta. Mirabito said they plan to expand that segment of their business over the next few years...