FYI On Gasoline

Source: API 6/28/2005, Location: North America

Higher crude prices reflected at the pump
The cost of gasoline is closely linked to the price refiners pay for crude oil because it is the principal cost component of a gallon of gasoline, accounting for more than 50 percent of the retail price of gasoline. Changes in the price of gasoline continue to reflect changes in the price of crude oil. Recently, a barrel of crude oil has been selling for more than $60 per barrel. This is about $18 per barrel (44 cents per gallon) more than at the start of the year. Over the same period, the average per gallon price of gasoline has increased by 43 cents to an average of $2.26.

Crude oil is bought and sold on the international marketplace and is subject to the forces of supply and demand worldwide. The U.S. imports more than 60 percent of the crude and petroleum products it consumes. Strong economic growth, particularly in China and in the United States, is fueling a surge in oil demand. Increasing the world’s production of oil has lagged, forcing suppliers to struggle to keep up with the strong growth of demand.

Most producers are pumping flat-out, and spare capacity—crude that can be brought on-line during a supply emergency or during surges in demand—is limited to about 1 percent of world demand. At its June 15th meeting, OPEC announced its intent to raise the group’s production quota by 0.5 million barrels per day to 28 million barrels a day, but OPEC has been exceeding its quota and is already producing more than that.

In a tight world oil market, even small changes in supply or demand have been known to have a dramatic impact on prices. The changes we have seen over the past year – attributable to instability in some key oil producing regions, bad weather and continued high demand – have been far from small.

U.S. gasoline demand continues to grow along with the U.S. economy. Gasoline production is running at record levels, averaging 1 percent above last year. Inventories have built up in recent weeks and are 5.9 percent above last year. U.S. refineries are operating at nearly 96 percent of capacity.

Higher crude and gasoline prices have contributed to company revenues, but oil and gas industry earnings per dollar of sales have been in line with those of other industries – and often they are lower. The latest data for the first quarter of 2005 shows the oil and natural gas industry earned 7.9 cents for every dollar of sales compared to an average of 7.4 cents for all U.S. industry.


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