Wednesday, June 11, 2008
Think gas prices are bad now, it's worse than you know...
Oil closed today at $136.38 a barrel. For the uninitiated a barrel is 42 gallons of oil. That is about $3.25 a gallon. Now the thing to remember is the cost of crude is only roughly 70% of the price of a gallon of gas. First, you have the blending components(ethanol, butane, alkylate, etc.), that make up the rest of the refined gas that you pump, and then you have local, state and federal taxes on gasoline to consider as well. The percentage of the cost of gas that crude oil makes up varies from state to state, largely because of the variance in tax rates but 70% is about average. Now taking that 70% as a baseline, and equating that to $3.25, we discover that these crude prices equate to pump prices of about $4.63 a gallon. So why is gas at $4.04 as a national average currently?
There are several reasons. First off there is a notable lag between the purchase of crude oil on the open market and it's being refined into gasoline. For example a tanker from Saudi Arabia takes about 40 days to sail to the US. So oil purchased from the Middle East isn't even going to arrive here for over a month. Additionally most refiners keep somewhere in the neighborhood of 20 days crude supply on hand, so the most recently arrived crude may not be refined immediately. Add in time to refine the oil, blend the gasoline, and then pump/distribute it and you are looking at close to 3 months before that crude purchase actually makes it to your gas tank. So the increased costs are still filtering their way through the system.
If the price of oil continues to go up, here are the prices at the pump we can expect to see in the months ahead:
At $140/bbl, gas would be about $4.77/gal.
At $150/bbl, gas would be about $5.10/gal.
At $175/bbl, gas would be about $5.93/gal.
At $200/bbl, gas would be about $6.80/gal.
and so on...
Not a good time to own one of these.
There are several reasons. First off there is a notable lag between the purchase of crude oil on the open market and it's being refined into gasoline. For example a tanker from Saudi Arabia takes about 40 days to sail to the US. So oil purchased from the Middle East isn't even going to arrive here for over a month. Additionally most refiners keep somewhere in the neighborhood of 20 days crude supply on hand, so the most recently arrived crude may not be refined immediately. Add in time to refine the oil, blend the gasoline, and then pump/distribute it and you are looking at close to 3 months before that crude purchase actually makes it to your gas tank. So the increased costs are still filtering their way through the system.
If the price of oil continues to go up, here are the prices at the pump we can expect to see in the months ahead:
At $140/bbl, gas would be about $4.77/gal.
At $150/bbl, gas would be about $5.10/gal.
At $175/bbl, gas would be about $5.93/gal.
At $200/bbl, gas would be about $6.80/gal.
and so on...
Not a good time to own one of these.
