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72 comments on Why has the price of gas gone up?

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magwitch on April 22, 2006 - 2:18pm Permalink | Subthread | Parent | Comments top
Wait a second.  December oil futures are trading at $77.14.  Each blue barrel contains ~35 gallons of gasoline at most, by your estimation.  I realize it's not all going to gasoline then, but the price for that portion of the barrel shouldn't change.

December gasoline futures are trading at $1.95.  35 * $1.95 = $68.25 with zilch processing, refining, or transport costs.

What gives?

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magwitch on April 22, 2006 - 2:20pm Permalink | Subthread | Parent | Comments top
Responding to your elaborations on an earlier post, you wouldn't surprised to see them diverge, but I can't imagine how they can diverge with the price of gasoline being markedly less than the price of the oil that goes into it.

Really enjoy your expertise and excellent write-up, by the way.

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Robert Rapier on April 22, 2006 - 2:29pm Permalink | Subthread | Parent | Comments top
Not 35 gallons of gasoline, but 35 gallons of fuels (plus heating oil). The gasoline yield is quite a bit less than 35 gallons.

RR

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magwitch on April 22, 2006 - 2:36pm Permalink | Subthread | Parent | Comments top
Then it's even more inexplicable, which I'm sussing out might just be your point.  Baffling.
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FTX on April 22, 2006 - 3:29pm Permalink | Subthread | Parent | Comments top
magwitch,

I think you might be confusing yourself by pricing out the yields in this way.

If you look at figures 1 (page 7) and 6 (page 9) in this document you can see how the gross refining margins for WTS (West Texas Sour) and Mexican Maya were calculated in August 2004.

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Halfin on April 22, 2006 - 3:31pm Permalink | Subthread | Parent | Comments top
What you need to do is to take a barrel of oil and look at all the stuff that is made from it: gasoline, diesel, heating oil, jet fuel, LPG, asphalt, etc. All of these have commercial value. Then you need to calculate the fraction that is the value of the gasoline over the total commercial value of all of these products. This is the part of the value of the crude oil that goes into just gasoline. (This is the step you are skipping - you are assuming that all of the value of an oil barrel goes into gasoline, forgetting about the value of other products.)

Multiply this fraction by the cost of a barrel of oil and that will give you the portion of the cost that corresponds to gasoline. Then divide that by the number of gallons of gasoline you get from the barrel to get the price per gallon of gasoline due just to the cost of crude.

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