Gasoline

Gasoline is a complex mixture of hundreds of lighter liquid hydrocarbons and is used chiefly as a fuel for internal-combustion engines. Gasoline is the single largest volume refined product sold in the US. Petroleum crude, or crude oil, is still the most economical source of gasoline with refineries turning more than half of every barrel of crude oil into gasoline. The three basic steps to all refining operations are the separation process (separating crude oil into various chemical components), conversion process (breaking the chemicals down into molecules called hydrocarbons), and treatment process (transforming and combining hydrocarbon molecules and other additives). Another process, called hydro treating, removes a significant amount of sulfur from finished gasoline as is currently required by the state of California.

Octane is a measure of a gasoline’s ability to resist pinging or knocking noise from an engine. Most gasoline stations offer three octane grades of unleaded fuel—regular at 87 (R+M)/2, midgrade at 89 (R+M)/2, and premium at 93 (R+M)/2. Higher octane ratings mean less engine knock. Additional refining steps are needed to increase the octane. This does not make the gasoline any cleaner or better, but yields a different blend of hydrocarbons that burn more slowly. The additional refining steps also increase the price per gallon.

In an attempt to improve air quality and reduce harmful emissions from internal combustion engines, Congress in 1990 amended the Clean Air Act to mandate the addition of ethanol to gasoline. Some 2 billion gallons of ethanol is now added to gasoline each year in the US. The most common blend is E10, which contains 10% ethanol and 90% gasoline and that mixture is approved by all auto manufacturers for use in US vehicles. Ethanol is an alcohol-based fuel produced by fermenting and distilling crops such as corn, barley, wheat and sugar.

Unleaded gasoline futures and options trade at the New York Mercantile Exchange (NYMEX). The NYMEX gasoline futures contract calls for the delivery of 1,000 barrels (42,000 gallons) of unleaded gasoline in the New York harbor and is priced in terms of dollars and cents per gallon.

Prices – Gasoline prices generally followed crude oil prices during 2003, rallying early in the year ahead of the Iraq war, dipping in spring, and then showing a sustained rally late in the year on tight supplies and strong demand. NYMEX unleaded gasoline futures closed 2003 at $1.02 per gallon, mildly higher than the 92-cent close in 2002. However, that was at the upper end of the range seen in the past two decades. The retail price of regular unleaded gasoline averaged $1.61 per gallon in 2003 (through October), the highest level of the past three decades and up from $1.36 in 2002. The retail price of aviation gasoline rose to an average $1.50 in 2003 from $1.29 in 2002.

Supply – US production of gasoline in 2003 averaged 8.467 million barrels per day, slightly lower than 8.475 million barrels per day in 2002. Gasoline stocks in September 2003 were tight at 145 million barrels, down from 162 million in 2002 and 2001.

Demand – US consumption of finished motor gasoline in 2003 averaged 8.929 million barrels per day, up +0.9% from 2002. Gasoline accounts for about one-half of US national oil consumption.