Commodity Investing: Maximizing Returns through Fundamental Analysis

CHAPTER 6

Gasoline

Gasoline is one commodity that most people know something about. You are bound to pass a gas station while driving to work, running errands, or dropping the kids off at school. Most people know that there are different octane levels available and that higher octane levels are better because they are at a premium price. Most people will tell you that they drive more during the summer when the weather is better and they are taking vacations. Drivers usually know how many miles per gallon they get from their vehicles. Gasoline has become a topic of conversation and is a commodity that many people are constantly aware of. Yet, it is also the most complicated of all the energy commodities. Gasoline has evolved throughout history as society has become more aware of the damage it has inflicted on our environment. It is a fine line between maximizing the energy value of the fuel while minimizing its impact on the environment. This has resulted in many changes in how gasoline is made in the United States.

When you pull into a gasoline station you usually are given three choices. There is regular unleaded gasoline, mid-grade gasoline, and premium gasoline. Each of these fuels is differentiated by its octane rating, with regular usually having an 87-octane rating, mid-grade an 89-octane rating, and premium a 93-octane rating. What does the octane rating represent? It is the amount of fuel that can be compressed before it spontaneously ignites. Compression occurs in gasoline ...