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gas
gas

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Published by: sushilk28 on Feb 21, 2013
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07/22/2013

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TAX

MARKETING
MARGIN

FREIGHT

REFINER
MARGIN

UPSTREAM

DOW

NSTREAM

MARGIN

PRODUCT MARGIN

NOT TO SCALE

PUMP PRICE

EX-TAX
PUMP PRICE

RACK PRICE

CRUDE PRICE

MJ ERVIN & ASSOCIATES

5

Many of the terms introduced and explained in this section are used extensively
throughout this study.

The revenue from the consumer purchase of a petroleum product (such as gasoline)
is split among four key sectors, each essentially taking a share1

- or margin - from

the total pump revenue. Each margin is quantified by its defining prices.

Before examining each of the model elements, it is important to define the term
“margin”. While this term is often associated with the phrase “profit margin”,
(implying that the stated margin represents net income or “profit”), this study’s use
of the term relates to gross margin.

Gross margin is simply the difference between two price points, typically the retail
price (the price at which the product is sold) less the wholesale price (the price a
marketer pays for a product). So defined, gross margin represents revenue only; any
operating expenses must then be considered before making any determination of
profits.

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