Saturday, June 6, 2009

Gas Pricing Analysis


Bloomberg has NYMEX Crude at $68.44 per barrel. There are 42 gallons per barrel.

Cost per gallon of NYMEX crude is $1.6295.

The futures price of  gasoline is 1.9546 per gallon.



Here we have $1.9546/$1.6295 = a 19.95% premium. Previous analysis has pegged the nominal pricing premium as a 15% premium for gasoline.

Either crude is selling for less, gasoline is selling for more or some combo of both.

Things are a bit more interesting with pump prices jumping so much in the past month or so. Typically there is about a 60¢ higher cost for gasoline at the pump versus the futures price. The 60¢ is made up of taxes, distribution and profits.

A fueling station near me has 87 unleaded at $2.959.  Currently there is a larger than normal spread between futures and retail pricing. The spread is now 100¢. We are in a recession and miles driven has been declining for some time as a result.


These prices are not sustainable. There are tankers full of oil parked out in the ocean. As the economy recovers, there will be a rush of oil to market to meet growing demand. Prices should be relatively stable during the growth phase. If growth is  slow as expected it is not unimaginable that crude and gasoline prices will drop considerably.