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- CRB Fundamentals - 2008 Commodity Articles

Gasoline

Gasoline is a complex mixture of hundreds of lighter liquid hydrocarbons and is used chiefly as a fuel for internal-combustion engines. 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, mid-grade at 89 (R+M)/2, and premium at 93 (R+M)/2. Additional refining steps are needed to increase the octane, which increases the retail price. This does not make the gasoline any cleaner or better, but yields a different blend of hydrocarbons that burn more slowly.

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 are now added to gasoline each year in the U.S. The most common blend is E10, which contains 10% ethanol and 90% gasoline. Auto manufacturers have approved that mixture for use in all U.S. 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 - NYMEX gasoline futures prices fluctuated widely in 2007. They started the year at about $1.50 per gallon, and rallied to a high of $2.45 in early May. After dipping to low of $1.84 in August the price rallied to $2.51 at the end of the year. The average monthly retail price of regular unleaded gasoline in 2007 (through June) rose +4.25% yr/yr to $2.70 per gallon, which was a record high. The average monthly retail price of unleaded premium motor gasoline in the U.S. in 2007 (through June) rose by +4.3% to $2.93 per gallon, which was a new record high. The average monthly refiner price of finished aviation gasoline to end users in 2007 (through April) fell by -5.4% yr/yr to $2.52 per gallon, down from last year's record high of $2.66.

Supply - U.S. production of gasoline in 2007 (through June, annualized) fell -0.2% yr/yr to 8.295 million barrels per day. Gasoline stocks in May of 2007 were 114.7 million barrels, down from 121.4 million barrels in June of 2006.

Demand - U.S. consumption of finished motor gasoline in 2006 (through June, annualized) fell -0.1% yr/yr to 9.220 million barrels per day, down from last year's record high.




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