Covering the Runup (and Down) of Gasoline Prices

Society of American Business Editors and Writers

Monday, May 23rd

Russell Gold, Wall Street Journal, russell.gold@wsj.com

Places to find gasoline prices:

AAA: http://bit.ly/fag5ja

Note: Good for daily prices, but doesn’t provide data in easily downloadable form.

OPIS (Oil Price Information Service:) http://www.opisretail.com/

Note: Very little on web, but very helpful and has good data if they are willing to
part with it.

Lundberg Survey: http://www.lundbergsurvey.com

Note: Good data, analysis.

MasterCard Spending Pulse: http://bit.ly/5rjJ8S (Naya Larsson, 914-249-3916)

Note: Fairly up-to-date on spending on gasoline.

National Association of Convenience Store Owners:

http://www.nacsonline.com (Jeff Lenard: 703.518.4272)

Note: The gasoline store owner’s perspective.

Energy Information Administration: This Week in Petroleum

(http://1.usa.gov/cfdYtO)

Weekly summary of gasoline prices, supply, demand.

How to find your local refineries:

Go to http://www.npra.org/ (National Petrochemical & Refiners Assocaition), click on

publications, then statistics, refinery statistics. Download 2010 pdf. It organizes all
of the refineries by state. The size is in barrels per stream day. For instance,
Exxon’s giant Baytown, Texas, refinery can handle 584,000 barrels a day. That
means it can take in 584,000 barrels of crude daily, turning it into gasoline, diesel,
fuel oil, etc.

How do refineries work?

Gasoline is created in a refinery from crude oil. Simply stated, crude is made up of
long chains of complex hydrocarbons. Refineries heat them up enough and crack
these chains, creating gasoline, diesel and other petroleum products. (For more,
see http://1.usa.gov/kL6Vqm)

So, the price of gasoline is related to the price of oil. That doesn’t mean they move
in lockstep, but if oil goes up 20% over a few weeks, gasoline will follow. (It is sort of
the annoying younger brother of crude oil -- always tagging along.) So, keep an eye
on crude oil. Generally, when we talk about the price of crude oil ($100 a barrel,
etc.) we are actually talking about the New York Mercantile Exchange (NYMEX)
crude contract for crude oil, which is a contract to buy crude at a pipeline juncture
in Cushing, Okla., next month. (A crude contract traded on May 23rd is for delivery in
June.)

A good way to track crude oil markets: www.marketwatch.com. You need to log on,
but it’s free.

Give me the bottom line:

Almost every refinery in the U.S. is owned by a publicly traded corporation. Off
hand, the only privately held refineries I can only think of are Koch Industries’ Flint
Hills Resources and Motiva Enterprises, though there may be others. That means
the refinery owner has to report all sorts of financial details in their quarterly and
annual reports.

They report net income (profits or losses). For a company such as Exxon, Chevron,
Shell – you want to look for the operating income reported under downstream. Also,
to see how much a company made from refining versus retailing, look for operating
income tables that break that out.

Also look for “margins” – i.e. how much profit they made on each barrel processed.

Valero reported a $1.46 per barrel operating income in the first quarter. Divided by
42 (that’s the number of gallons per barrel), Valero made 3.5 cents on each gallon
of fuel they produced.

Also keep in mind that most Exxon (and Chevron, etc.) stations aren’t owned by the
publicly traded companies whose logo they bear. Exxon et al are getting out of the
retail business. Most retail stations are owned by small, local or regional companies
that sign contracts with Big Oil for signage and fuel delivery. The middle men who
handle local fuel deliver, usually called jobbers, are represented by the Petroleum
Marketers Association of America and SIGMA. The wholesale price of gasoline is
usually called the rack price. (In many places, there is only one or two wholesalers.
So you are buying the same gasoline, regardless of whether you buy at a Chevron,
Sinclair, Arco, Mobil or Shamrock station.)

Impact on actual people:

Gasoline prices matter because they go up – even though our salaries don’t. So,
how to write stories about people and the impact of gasoline prices.

First, people tend to drive less when gasoline prices go up. Not everyone can keep
their cars in the garage because they need to go to work and the store, etc., so it’s
not an exact relationship. Of course, when the economy sours and people lose their
jobs, they stop commuting to work – and therefore the economy also has a major
impact on driving and gasoline consumption.

Want to find out if people are driving less? Google “Traffic Volume Trends”, a DOT
report. (If you click on the latest month, there’s some cool stuff. Figure 1 of the
spreadsheet shows total miles traveled. 1986-2008 has a pretty much straight line,
then a big dip and a slight uptick.)

You can drill down a bit further into how much we are paying for gasoline. The
Department of Commerce tracks personal expenditures in NIPA (National Income
and Product Accounts Tables.) \

Click here http://www.bea.gov/national/nipaweb/Index.asp

➢ Choose a table from a list of All NIPA Tables

➢ And select Table 2.3.5. Personal Consumption Expenditures by Major Type of
Product
➢ There is a line “gasoline and other energy goods.” Compare that to Personal
Consumption Expenditures (PCE.)

You can gin up a nifty graphic --

Or… you can use the data to say that Americans in the final three months of 2010
spent more of their money on gasoline than at any point since 2008 – and the price
of gasoline went way up in the first three months of 2011.

It’s not your editor’s imagination. You are spending more money now on gasoline
than you did a year ago. But it’s a lot better than in the 1970s.
Finding someone who you can talk to about gasoline prices:

Have you tried Google scholar ?

Go to google.com, click on more, then scholar. Uncheck patents. If you want, click
on advanced search and define a date parameter (2007-2011). Here’s a search I set
up for gasoline prices. http://bit.ly/jAIq2D

This will help you find scholars who study gasoline prices, what impacts them, etc.

Here’s a chestnut: ask economist why gas prices rise quickly when oil prices rise,
but are “sticky” when crude oil falls.

Also, all of the major investment houses have people who track gasoline prices.
Think Credit Suisse, Goldman Sachs, Deutsche Bank. But there are also a lot of
lesser known investment firms, banks and consultants who track this stuff. But also
Bank of Montreal, Macquarie, Sanders Morris Harris, Tudor Pickering Holt, IHS,
Energy Security Analysis, MF Global, etc. Some of these less-well known names are
helpful because it is usually easier to get people on the phone.