Gasoline Prices Primer

8/9/2019 Gasoline Prices Primer

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June 2012For the latest report, please visit www.api.org/gasolineprices

Americas Oil and Natural Gas Industry

Whats Up WithGasoline Prices?


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Whats Up With Gasoline Prices? | June 2012

Gasoline, Diesel, and Crude Oil Prices Page 1

Oil Prices Relate to Many Uncertain Factors Page 2

World Liquid Fuel Consumption Page 3

Growth in World Liquid Fuel Consumption Page 4

OPEC Surplus Crude Oil Production Capacity Page 5

Accumulating Risks to the Development of Oil and Natural Gas Page 6

Sources of Crude and Product Supply Page 7

Strategic Petroleum Reserve Page 8

Commodity Performance Page 9

West Texas Intermediate Crude in Dollars, Euros, and Yen Page 10

EIA Price Forecast Page 11

What Consumers are Paying for at the Gasoline Pump Page 12

Gasoline Taxes by State Page 13

Fuel-Saving Tips for Drivers Page 14

Table of Contents


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Page Whats Up With Gasoline Prices? | June 2012

Changes in gasoline anddiesel prices mirror

changes in crude oil prices.

The roller coaster rise and fall in gasoline

and diesel prices over the last few years

tracks changes in the cost of crude oil.

Those changes are determined in theglobal crude oil market by the worldwide

demand for and supply of crude oil. Weak

economic conditions in the U.S. and

around the world in 2008 and into 2009

led to less demand which helped push

prices down.

With the worldwide economic recovery

underway, demand is on the rise again

but unrest in the Middle East and North

Africa has put supplies at risk. Thiscombination of rising demand and reduced

supply helped to push prices higher.

Gasoline, Diesel and Crude Oil Prices

Source: NYMEX (WTI crude oil) and AAA (gasoline and diesel).


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Page 2Whats Up With Gasoline Prices? | June 2012

A host of factors, many ofthem uncertain, affect the

price of crude oil and theproducts made from it.

Crude oil prices are set globally through

the daily interactions of thousands of

buyers and sellers in both physical and

futures markets, and reflect participantsknowledge and expectations of demand

and supply.

In addition to economic growth and

geopolitical risks, other factors, including

weather events, inventories, exchange

rates, investments, spare capacity, OPECproduction decisions, and non-OPEC

supply growth all figure into the price of

crude oil.

Oil Prices Relate to Many Uncertain Factors

Source: EIA.


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World oil consumptionis expected to grow as the

global economy rebounds.

The worlds demand for oil increased

sharply for several years, peaking at

86 million barrels per day in 2007.

However, the global economic slowdownin recent years reversed this trend and

demand fell for two consecutive years to

just 85 million barrels per day in 2009, or

nearly one million barrels per day less than

at its peak before rebounding in 2010.

The Energy Information Administration

expects growth to accelerate over the nexttwo years reaching 89 million barrels per

day in 2012 and nearly 90 million barrels

per day in 2013.

Source: EIA, Short-Term Energy Outlook, June 2012.

World Liquid Fuel Consumption


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Growth in world oilconsumption is expected

to be concentrated innon-OECD countries.

The EIA projects consumption in the

Organization for Economic Cooperation

and Development (OECD)1 countries to

be nearly flat in 2012 and 2013. Growth isconcentrated in the non-OECD countries

including China, Brazil, and the Middle

East with gains of about .8 million barrels

per day expected in 2012 and another 1

million barrels per day in 2013.


Growth in World Liquid Fuel Consumption

1 The 34 member countries of the OECD include:

AustraliaAustriaBelgiumCanadaChileCzech RepublicDenmarkEstoniaFinlandFranceGermanyGreeceHungaryIcelandIrelandIsraelItaly

JapanKorea (South)LuxemburgMexicoNetherlandsNew ZealandNorwayPolandPortugalSlovakiaSloveniaSpainSwedenSwitzerlandTurkeyUnited KingdomUnited States


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Surplus crude oil capacityis expected to increase.

The amount of surplus crude oil capacity,

which is the amount of oil available to

meet surges in demand or disruptions in

supply, increased in 2009 as demand forcrude oil declined along with the global

economic slowdown.

EIA expects OPEC surplus production

capacity will increase from about 2.5

million barrels per day in 2012 to 3.4

million barrels per day at the end of 2013.


OPEC Surplus Crude Oil Production Capacity


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The National Petroleum Council (2008)

examined a broad range of global

energy supply, demand and technology

projections through 2030 and concludedthat the world is not running out of energy

resources, but there are accumulating

risks to continuing expansion of oil and

natural gas production from the

conventional sources relied upon

historically.

These risks include political instability in

the Middle East and North Africa, the

resurgence of resource nationalism in Latin

America, civil unrest in Nigeria, piracy offthe African coast, transit vulnerability in

the Caspian, energy subsidies in Asia,

extreme weather around the world, and

restricted access to resources in the U.S.

These risks create significant challenges to

meeting projected energy demand.

Source: NPC.

Accumulating Risks to the Development of Oil and Natural Gas

There are accumulatingrisks to the development of

oil and natural gas.


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U.S. Supplies of Crude and Products 2011(18,835 Thousand Bbls per Day)

U.S. Imports of Crude and Products 2011(8,436 Thousand Bbls per Day)

U.S. Imports of Crude 2011(8,874 Thousand Bbls per Day)

U.S. Supplies of Crude 2011(14,547 Thousand Bbls per Day)

We produce 55 percent of all the oil and

petroleum products we consume. The rest

is imported, with most of it coming from

our neighbors in North America. In fact,

Canada is the largest supplier to the U.S.,

Source: EIA, Petroleum Supply Monthly, March 2012.

Source: EIA, Petroleum Supply Monthly, March 2012.

accounting for 29 percent of our imports

compared to 14 percent for Saudi Arabia.

One way to enhance our nations energy

security is to continue to diversify our

sources of supply.

Diversifying sourcesof supply.

55%United States

3%Russia

2%Iraq

4%Nigeria

2%Algeria

3%

Mexico

5%Venezuela

6%Saudi Arabia

13%Canada

2%Angola 2%

Other2%

Kuwait

2%Kuwait

14%Saudi Arabia

11%

Venezuela

8%Mexico

4%Algeria

1%Kuwait

10%

Nigeria

4%Angola

7%Russia

4%Columbia

2%Columbia

4%Columbia

5%Iraq

29%Canada

12%Saudi Arabia

10%

Venezuela

2%Ecuador

1%Ecuador

9%Nigeria

5%Iraq

3%Russia

4%Angola

3%Brazil

12%Mexico

9%Other

21%Canada

39%United States

8%Saudi Arabia 15%

Canada

6%Venezuela

8%Mexico

1%Algeria

5%Nigeria

3%Iraq

2%Russia

9%Other

2%Brazil2%

Angola


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The Strategic PetroleumReserve: Americas

insurance policy in case ofan oil supply disruption.

The Strategic Petroleum Reserve (SPR), the

worlds largest supply of emergency crude

oil, was designed to protect the country

from fuel shortages in the event of anemergency. Although the need for a reserve

had been recognized for decades, it was

the 1973-74 oil embargo by Arab nations

which significantly affected the nations

economy that led to its creation in 1975.

The oil in the reserve is stored in

underground salt caverns along the

coastlines of Texas and Louisiana. Its

more than 700 million barrels the largest

emergency oil stockpile in the world make

it a significant deterrent to oil import cutoffs.

Under the Energy Policy and Conservation

Act, the president is authorized to withdraw

crude oil from the SPR in an energy

emergency to counter a severe supply

interruption and distribute it by competitive

sale. The SPR has been used under these

circumstances three times (during

Operation Desert Storm in 1991, after

Hurricane Katrina in 2005, and in response

to the loss of Libyan crude in 2011).

In addition to energy emergencies, crude

oil has been withdrawn from the reserve for

a variety of reasons, including test sales,

exchange arrangements with privatecompanies, and as authorized by

Congress to raise revenue.

The SPR was not intended to be used to

interfere with the crude oil or gasoline

markets or to ease temporary retail fuel

price hikes.

According to the Congressional Research

Service (CRS), it is unclear what sort of

effect a draw on the SPR would have in a

market where there is no actual physical

shortage because oil companies may havelimited interest in SPR oil unless they have

spare refining capacity to turn the crude int

useful products, or want to build stocks.2

The CRS also noted that it is possible that

producing nations might reduce production

to offset any SPR oil delivered into the

market.

SPR Storage Sites

2 CRS, The Strategic Petroleum Reserves: History,Perspectives, and Issues, April 18, 2009.


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Oil is a commodity andchanges in the price

of oil are similar tochanges in prices ofother commodities.

Changes in the Price of Natural Gas and Crude Oil

Commodity performance year to date, January 1 through June 14, 2012

Source: NYMEX Crude Oil, Natural Gas and EIA.

Source: Bloomberg Finance LP (data as of COB 6/14), Deutsche Bank

Changes in commodity prices early in

2012 reflect domestic and worldwide

supply and demand conditions. In the

U.S., record natural gas production and

a warm winter have contributed to the

fall in natural gas prices. Prices for WTI

and Brent crude are down. Most of the

commodities surveyed are showing

declines so far this year.


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The value of the dollarmakes a difference.

The value of the U.S. dollar against

other countries around the world means

that American consumers are more

affected by rising crude oil prices thanthe citizens of other countries that use

currencies like the Yen but similar to

those who use the Euro.

As oil prices have gone up all around the

world, the price increase has been less

for countries that have a strong currency

other than the U.S. dollar, but more forthose who dont.

Percent Change of West Texas IntermediateCrude (WTI) in Dollars and Euros(January 1, 2007 June 21, 2012)

Source: Federal Reserve Bank of St. Louis, EIA, NYMEX.

Percent Change of West Texas IntermediateCrude (WTI) in Dollars and Yen(January 1, 2007 June 21, 2012)

January 2007 January 2007 June 2012June 2012

+51.30%

-4.77%

+43.88%+43.88%


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Looking ahead:EIAs price forecast.

Year

a West Texas Intermediate b Average Regular Pump Price c On-Highway Retail d Residential Average

Looking ahead the Energy Information

Administration projects the annual price

of WTI crude will increase from an

average of $95 per barrel in 2011 toaround $97 per barrel in 2012 and 2013.

EIA expects higher crude oil prices in

2012 will be passed on to all petroleum

prices with retail gasoline prices

expected to average a few cents pergallon more than last year.


EIA Price Forecast

WTI Crudea

($/barrel)

Gasolineb

($/gallon)

Dieselc

($/gallon)

Heating Oild

($/gallon)

Natural Gasd

($/mcf)

Electricityd

(/kwh)

2010 2011 2012 Projected 2013 Projected

79.40

2.78

2.99

2.96

11.37

11.54

94.86

3.53

3.84

3.68

10.79

11.79

96.80

3.56

3.90

3.71

10.44

11.93

97.00

3.51

3.87

3.65

10.48

11.60


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Pump prices:A fractional story.

What Consumers are Paying for at the Gasoline Pump(as of April 2012)

Source: EIA estimate based on average price $3.90 per gallon. April 2012

11%15%66% 8%

Crude Oil Transportationand Retailing

ExciseTax

Refining

The biggest single component of retail

gasoline prices is the cost of the raw

material used to produce the gasoline

crude oil. That price has been between$80 and $120 a barrel, depending on the

type of crude oil purchased. With crude oil

at these prices a standard 42 gallon barrel

translates to $1.90 to $2.85 a gallon at the

pump. Excise taxes add another 50 cents

a gallon on average nationwide. So the

price for gasoline is already at $2.40 or

more per gallon even before adding the

cost of refining, transporting, and selling

the gasoline at retail outlets. Crude oilcosts account for about 66 percent of

what people are paying at the pump.

Excise taxes average 11 percent. That

leaves just 23 percent for the refiners,

distributors, and retailers.


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One reason the price ofgasoline can vary by state

is the fact that thetaxes often do.

The average nationwide tax collected on

each gallon of gasoline sold at the retail

station is 49.5 cents. Of that, 18.4 cents

per gallon goes to the federal government;the rest ends up in state and local

government coffers.

The amount of gasoline taxes collected

by states can vary widely, from just 26.4

cents per gallon in Alaska, to as much as

69.6 cents per gallon in New York.

In addition to excise taxes, other taxes

can also apply, such as sales taxes,

gross receipts taxes, oil inspection fees,

county and local taxes, undergroundstorage tank fees, and other

miscellaneous environmental fees.

These additional taxes contribute to the

difference collected among states.

Gasoline Taxes (Combined Local, State and Federal Cents per Gallon, April 2012)

Source: API.


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Fuel-saving tips for drivers. We count on our cars to get us where wewant to go, when we want to go. That

sense of freedom is important to us, but

we also want to be sure we do our best toconserve natural resources for future

generations.

Here are a few simple steps you can take

to meet these goals.

Have your car tuned regularly. An

engine tune-up can improve car fuel

economy by an average of 1 mile per

gallon.

Keep your tires properly inflated.

Underinflated tires can decrease fueleconomy by up to 1 mile per gallon.

Slow down. The faster you drive, the

more gasoline your car uses. Driving at

65 miles per hour rather than 55 miles

per hour reduces fuel economy by

about 2 miles per gallon.

Avoid jackrabbit starts. Abrupt starts

require about twice as much gasoline

as gradual starts.

Pace your driving. Unnecessary

speedups, slowdowns and stops can

decrease fuel economy by up to 2 miles

per gallon. Stay alert and drive steadily,

not erratically. Keep a reasonable, safe

distance from the car ahead of you and

anticipate traffic conditions.

Use your air conditioner sparingly.

The use of air conditioning can reduce

fuel economy by as much as 2 miles

per gallon at certain speeds and under

certain operating conditions.

Plan your trips in advance. Combine

short trips into one to do all your

errands. Avoid traveling during rush

hours if possible, to reduce fuel

consumption patterns such as starting

and stopping and numerous idling

periods. Consider joining a car pool.

Simple Tips to Save Fuel


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For more information, please visit

www.energytomorrow.org

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Gasoline Prices Primer