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Quick compilation of Gasoline price data

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  1. 1. What follows is one hour of work trying to understand what is driving the price of Gasoline at the pump and wondering if there is a path to reduction on foreign oil dependence. This is not a real analysis – just a little fun – the equivalent of web browsing to understand more on this topic. I have not looked at this data lately but I obtained most of the data from and ran it through SAS JMP for analysis. I will update it one weekend when I have some time. The two graphs describing how we have or we will reach a peak in production of crude are “borrowed” from the web without permission. But since this was just a fun exercise and I am not publishing this I am sure they won’t mind. Please complete your own analysis and reach your own conclusions
  2. 2. 1. The primary driver of the cost of gasoline is the cost per barrel of crude oil. 2. The primary driver of the cost of crude is the market. The price is supposedly driven by what we understand of supply and demand, and I am sure supply and demand have an impact however speculation may have been the primary driver. 3. Supply – Many supply prediction models show a decline in availability while demand grows. By the way only 26% of our supply comes from OPEC most comes from Canada. 4. Demand – US, China and Europe are the primary consumers of crude oil. 5. US Petroleum reserve holds 36 days of US petroleum consumption. 6. Demand – The vehicles you and I drive comprise 81% of the gasoline demand in the US. Trucks, trains and planes etc. represent 19%. 7. So if we want to reduce our dependence on foreign oil (Canadian) you and I need to change what we drive.
  3. 3. A A – Why would refinery cost and profits track the price of crude in 2006 (when it is going up) but not after 2007 week 28 for almost a year? B – What has triggered the major increase in crude oil (the primary driver now of our latest price increase) starting in July of 2007? B ?
  4. 4. Impact of cost component has on retail sales price* Cost component Correlation Distribution Marketing and Profits .02 Crude Oil .85 Refinery Costs and Profits .04 State storage fees .00 State and local sales tax .99 State Excise Tax .00 Federal Excise tax .00 *Data from the California energy commission - Main cost component driving price at retail pumps is Crude Oil - State and local sales tax are based on price at pump thus high correlation
  5. 5. Trend in price started in July 2007
  6. 6. This is odd the price of crude does not seem to track the changes in supply and demand what could it be? Crude is median price (weekly data provided by energy information administration)
  7. 7. 2007 Supply – Theory we are running out of Crude
  8. 8. Supply – Theory we will run out of Crude There variations to this theme but all show some peak in crude oil
  9. 9. Demand Will Continue to Grow
  10. 10. Theory - Demand Will Continue to Grow China and USA By the way - US consumes 20 million barrels of crude per day It is silly for politicians to propose using the Strategic Petroleum Reserve to help lower the price of gas. The reserve has 689 million barrels or 34 days of petroleum - Only 26% of our imports come from OPEC countries, Canada is our largest supplier
  11. 11. What is our highest use of petroleum products = Motor gasoline followed by fuel oil (heating) US Highest Consumers of Crude
  12. 12. USA Fuel Consumption by Mode of Transportation Passenger cars, motorcycles, farm vehicles, and combination trucks comprise 81%
  13. 13. Things we could do to reduce dependence on Oil -Energy technology innovation center focused on consumer vehicles - Renewable sources of fuel that will not impact other parts of the economy (for example increase in ethanol consumption will impact the price of corn) - Improving battery technology - Gap bridging technologies to convert existing vehicles to electric -Incentives to convert existing vehicles -Local government rental programs – electric community vehicles -Tax deductions on purchase of new vehicles (fuel cell) -Government grants to build community walkways/pathways/mini roads that will allow bicycles, segways types and other smaller vehicles at danger in the highways etc to incentivize use of bicycle to work etc. -SUV tax or MPG tax -Improve intra city travel Rail and others You and I can purchase an electric or alternative energy vehicle next time we buy