Commodity Fundamentals: How to Trade the Precious Metals, Energy, Grain, and Tropical Commodity Markets

Chapter 12

Gasoline

OVERVIEW

Gasoline, a complex mix of hydrocarbons, is the biggest product derived from crude petroleum. Refineries convert more than half of every barrel of crude produced into gasoline in a three-part process that separates crude into chemical components, breaks down chemicals into molecules (hydrocarbons), and transforms and combines hydrocarbons with other additives.

Gasoline is the single-largest-volume refined product sold in the United States, and total gas usage represents 17 percent of the energy consumed in this country. Its market is large and diverse. Some 168,987 retail outlets offer gasoline to the consumer in three octane grades of unleaded fuel (octane measures gasoline's ability to resist engine knocking). This extremely diverse market is also very competitive and is subject to intense price volatility.

The Clean Air Act of 1990 required that ethanol be added to unleaded gasoline to reduce harmful emissions. Currently, some 2 billion gallons of ethanol—an alcohol-based fuel—are added to gasoline in the United States each year. The most common blend of gasoline and ethanol is 90 percent gasoline and 10 percent ethanol.

DEMAND

Gasoline consumption is growing worldwide, especially in countries with fast-growing economies, such as China and India. Global demand for petroleum, for example, grew 3.4 percent in 2004, or about 2.7 million barrels per day, with China representing 38.9 percent of the increase. Current worldwide consumption of oil products ...