Should I Fill Up My Tank or Buy a Barrel of Oil?
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The price of crude has fallen over 28 percent since topping $115 a barrel in April of 2011. However, the price of gasoline has not followed. In April, the average price per gallon of gas was $3.75 and is $3.67 so far in August, a difference of only 2 percent. This has many asking - what gives?
Highlighted in a recent WSJ piece, Timothy Martin suggested as the price of crude rises, airlines and other fuel-intensive companies are quick to raise surcharges; in contrast, as crude falls, these companies seem to put a heavier lag on lowering surcharges as they enjoy fatter margins. As an example, both the shipping and airline industries do not tie rates to the price of crude, rather to national diesel prices and jet fuel prices, respectively.
Martin points out that airline prices usually begin to decrease in the fall as the busy season for the airline industry tends to wind down. Considering the recent plunge in crude (and assuming the price stays relatively flat for the duration of the summer), however, Martin believes suppliers will ultimately see a markdown.
Ok, so airlines are not willing to give consumers back that money so easily, but what about gas stations?
Data from EIA shows, on average, US consumers spend $3.67 per gallon for regular gasoline, or about $55.05 to buy 15 gallons of gas. When industry can buy a whole barrel of oil right now for $82 and convert it into eight different types of energy, a lyric from a Toby Keith song can really draw some: "Why buy a gallon, its cheaper by the barrel..."
It makes sense why companies such as Exxon Mobil (NYSE: XOM), Chevron Corp. (NYSE: CVX), BP (NYSE: BP), and Marathon (NYSE: MRO) are reporting record revenues and earnings each coming quarter as they continue to eat up margins for themselves.
So the real question is: when will consumers see a similar markdown, or should we take Toby's advice and begin buying up the barrel?
Late last month, the U.S. Energy Information Administration reported official figures for US consumption of petroleum and other liquids during 2010.
The agency showed the U.S. used 19.19 million barrels of crude oil and 8.993 million gallons of finished motor gasoline per day last year. This means roughly 47 percent of a barrel of crude oil (about 19.7 gallons out of a 42 gallon barrel of oil) is then transformed into motor gasoline. Around 7 percent of the barrel (about 3 gallons) makes up jet fuel.
Highlighted in a recent WSJ piece, Timothy Martin suggested as the price of crude rises, airlines and other fuel-intensive companies are quick to raise surcharges; in contrast, as crude falls, these companies seem to put a heavier lag on lowering surcharges as they enjoy fatter margins. As an example, both the shipping and airline industries do not tie rates to the price of crude, rather to national diesel prices and jet fuel prices, respectively.
Martin points out that airline prices usually begin to decrease in the fall as the busy season for the airline industry tends to wind down. Considering the recent plunge in crude (and assuming the price stays relatively flat for the duration of the summer), however, Martin believes suppliers will ultimately see a markdown.
Ok, so airlines are not willing to give consumers back that money so easily, but what about gas stations?
Data from EIA shows, on average, US consumers spend $3.67 per gallon for regular gasoline, or about $55.05 to buy 15 gallons of gas. When industry can buy a whole barrel of oil right now for $82 and convert it into eight different types of energy, a lyric from a Toby Keith song can really draw some: "Why buy a gallon, its cheaper by the barrel..."
It makes sense why companies such as Exxon Mobil (NYSE: XOM), Chevron Corp. (NYSE: CVX), BP (NYSE: BP), and Marathon (NYSE: MRO) are reporting record revenues and earnings each coming quarter as they continue to eat up margins for themselves.
So the real question is: when will consumers see a similar markdown, or should we take Toby's advice and begin buying up the barrel?
Late last month, the U.S. Energy Information Administration reported official figures for US consumption of petroleum and other liquids during 2010.
The agency showed the U.S. used 19.19 million barrels of crude oil and 8.993 million gallons of finished motor gasoline per day last year. This means roughly 47 percent of a barrel of crude oil (about 19.7 gallons out of a 42 gallon barrel of oil) is then transformed into motor gasoline. Around 7 percent of the barrel (about 3 gallons) makes up jet fuel.
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