Why is gas so cheap?

[Alex Franke]

... not that it "feels" cheap, but I started thinking about this when the $140/barrel news hit, and it doesn't seem to add up right for me.

$140 a barrel at 42 gal/barrel is $3.33/gal for crude (granted it's futures). If yield is about 50% (I think), then a gallon of gas is about $6.66. Add about 50 cents for taxes and you're up to $7.16. And that doesn't include the costs associated with shipping, refining, distributing, marketing, and selling, or any profits along the way.

I can't imagine that "up to 10% ethanol" would take a big bite out of this, either... So what am I missing? Is this where prices will be in December?

(Please don't bring politics into your reply. This is about math, economics, umm... maybe global trade and marketing. But not politics.)

[Ed62]

I think you'll find your answer in the "Sister Mary Ann" thread.

I just heard on the news that the price of gas is expected to hit around $7.00 per gallon within 2 years.

Ed

[stormdog74]

You do get a lot of other products from a barrel of oil, other than gasoline, so there is money made there as well.

I am sure someone here knows in more detail how it works.

[jackellis]

There are some higher value products that come from a barrel of crude but the gasoline-to-crude spread is actually pretty narrow right now, which is hurting the refiners. Valero can refine what's known as "sour" crude, which has a lot of sulfur in it and fetches a lower price on the world market, so they're doing better than some others. Refiners that can only refine "sweet" crude are probably losing a little money on every barrel.

[docrowan]

Yield is much closer to 100%, it's just not all gasoline. Factor diesel in at some $4.80 a gallon, then there's jet fuel, kerosene, heavy fuel oils, etc. Also, not all oil goes for the same price. I believe the price you always hear quoted is the premium oil which requires the least amount of processing.

[LCHIEN]

... ...
$140 a barrel at 42 gal/barrel is $3.33/gal for crude (granted it's futures). If yield is about 50% (I think), then a gallon of gas is about $6.66. ...

you're assuming the rest of the crude oil is good for nothing and has no value. very little of a barrel goes to waste, if any.

Also the widely quoted price of a barrel of oil is based on west Texas intermediate, I think an easy to refine oil, the other oils that are thicker and more suphur etc. go for less per barrel.

P.S. I guess i just said the same things that Docrowan said.

[Tom Slick]

once all the products are refined, they actually yeild more then a barrel of products out of a barrel. physics at work!

[jhart]

once all the products are refined, they actually yeild more then a barrel of products out of a barrel. physics at work!

Sounds like what happens to a pig being slautered. From what I understand, virtually every single part gets used somewhere.

[atgcpaul]

Sounds like what happens to a pig being slautered. From what I understand, virtually every single part gets used somewhere.

Mmmmmmmm....scrapple.

[JSUPreston]

Lemme think....souse meat sandmiches and

SPAM!!!!!

You're right, the really do use it all.

[Alex Franke]

you're assuming the rest of the crude oil is good for nothing and has no value. very little of a barrel goes to waste, if any.

Ah yes -- now it makes a lot more sense. Thanks all!

...I wonder how much gas a pig yeilds...

[Russianwolf]

Ah yes -- now it makes a lot more sense. Thanks all!

...I wonder how much gas a pig yeilds...

depends on what you feed em.

[dlminehart]

Did you read the story this week that New Zealand scientists, in the hope of reducing methane emissions (much more problematic than CO2), have discovered the genetics behind cow flatulence? Maybe pig genes aren't too far behind (no pun intended).

[vaking]

Actually - this is a very good question and I still don't get it. I looked up on the web what comes out of a barrel of crude oil - here is the link http://www.energy.ca.gov/gasoline/wh...arrel_oil.html
According to this government site one barrel of oil will yield a total of 50 gallons of products and that includes processing gain and an addition of ethanol. 50% of that is gasoline, remaining stuff is still marketable ranging from jet fuel to asphault. Somehow I doubt that remaining stuff on average will get price higher than gasoline. Let's say that "other stuff" made from oil gets the same price on average as gasoline. Presuming that refinining process has no costs associated with it, that all additivies including ethanol cost nothing to produce and there are no taxes included in the sale price of gasoline - we still come to the manufacturing cost of gasoline being at about $3 per gallon. Ignoring additionally transportation costs, etc - gas station selling you that gasoline at $4 per gallon operates at 30% markup before its own expenses (real estate, salaries...). No retailer in United States will want to touch any product with the markup that low. Most stores routinely operate with the markup around 100%. Not long ago I heard some election-time speaches calling for "windfall taxes" being levied on gas companies. If this math is any indication - gas companies right now are barely breaking even.

[JR]

If this math is any indication - gas companies right now are barely breaking even.

The big, "fully integrated" (pumping, refining, marketing) companies like ExonMobil are making a profit. They net ~10% of their gross revenues, pretty much as they always have done. The thing that gets some people upset is that the 10% is calculated against a much bigger number now, making the real number ginormous.

JR