- Gasoline (America)
or MoGas or petrol (Commonwealth nations) is a petroleum derived
liquid mixture, primarily used as a fuel in internal combustion
engines. It is primarily used as fuel for passenger cars. It is also
used in off-highway utility vans, farm machinery and in other spark
ignition engines employed in a variety of service applications.
- Gasoline is a
complex mixture of relatively volatile hydrocarbons, ranging from c4
to c11 that vary widely in chemical & physical properties and are
derived from fractional distillation of crude petroleum in oil
refineries with a further treatment mainly in terms of improvement of
its octane rating. Small quantities of various additives are common,
for purposes such as tuning engine performance or reducing harmful
exhaust emissions. Some mixtures also contain significant quantities
of ethanol as a partial alternative fuel.
- Gasoline is made by
blending together various refinery streams. The exact ratios depend on
the oil refinery that makes the gasoline, the crude oil feed used by
the refinery and the grade of gasoline, in particular the octane
rating. Many countries have set tight standards for grades of
gasoline. Heavier crude oil gives less gasoline as the sulphur content
in them is high and gasoline contains very little sulphur.
- Gasoline is derived
from crude oil and its price shows high correlation with crude oil
prices. The correlation in 2008 is estimated to have been around 93%.
- Refineries across
the world are interested in Crude-Gasoline crack. This is the margin
that they earn when they refine crude oil into various products,
especially gasoline. Worldwide crack margins vary from US $ 4 - 14 a
barrel. Thus, to lock in their margins, refineries in developed
countries take positions in both crude oil and gasoline derivative
contracts at the same time.
- The world demand for
gasoline is estimated to be an average 20 million barrels a day. The
United States is the largest consumer with an average consumption of
around 8.9 million barrels a day in 2008, accounting for over 40% of
global consumption. This was over 9 million barrels a day in 2007.
- Global gasoline
production is reported to be above 6550 million barrels in 2007. Globally,
gasoline production accounted for above 23% of the total production of
refinery products in 2007.
- US is the largest
refiner of crude oil holding 20% of the total world refining capacity
of 87,700 kilo barrels per calendar day, followed by China (8.9%),
Former Soviet Union (8.8%), Japan (5.3%) and India (4.1%).
- However, the
production of gasoline in any country depends on the type of economy
it follows. For eg, while US has adopted a gasoline based economy,
India is largely a diesel based economy, leading to more production
and consumption of gasoline in US and High-Speed Diesel (HSD) in
India. Moreover, the light sweet crude oil used by US, yields more
World Gasoline Markets
Chicago Mercantile Exchange (CME), which has acquired New
York Mercantile Exchange (NYMEX), runs the world’s most liquid gasoline
derivative market. Other derivative exchanges offering this product are
TOCOM, Japan and MCX, India.
- The growth of the
Indian economy, rising incomes of the country's middle class has lead
to rising numbers of passenger cars and consequently increasing demand
for gasoline in India since the recent 10-15 years. India's
consumption of gasoline in 2008-09 is estimated to be 82.5 million
barrels in 2008-09, which is sharply up by 36% from 2004-05
consumption of 60.5 million barrels.
- India's production
of gasoline has shown a sharp improvement in the previous two decades,
aided by the setting up of new refineries and increased capacity
utilization. The production of gasoline has increased from 26 million
barrels in 1990-91 to 117.4 million barrels in 2008-09, marking a 350%
- Gasoline exports
from India have grown substantially, with it jumping from 17.7 million
barrels in 2005-06 to 39.1 million barrels in 2008-09, representing an
increase of 120%, exposing the exporting Indian refineries to the huge
volatility in global prices.
- The majority of
refineries in India are state-owned and follow a steady pricing policy
as per Government regulations. The major refiners include Indian Oil
Corporation Ltd (IOCL), Bharat Petroleum Corporation Ltd (BPCL),
Hindustan Petroleum Corporation Ltd (HPCL) and Reliance Industries Ltd
(RIL). The RIL being a private player exports most of its production
of petroleum products
Market Moving Factors
- Globally, gasoline
prices are highly correlated with crude oil prices as cost of
production of gasoline includes the cost of crude oil used plus cost
of refining, distribution, taxes and includes measures for environmental
protection. It is estimated that crude oil alone makes up for 70% of
the price of gasoline.
- Thus, all factors
influencing crude oil prices have a profound influence on gasoline
prices too. These factors include, supply-demand, global economic
scenario, natural disasters, currency fluctuations, geo-political
tensions, interest rates, prices of other assets, commodities etc.
- The supply-demand
scenario in US, is very important as US is the largest consumer,
accounting for around 40% of global consumption.
- Seasonal fluctuation
is seen in global gasoline prices, as increased driving and air travel
is seen during the summer season in temperate, developed countries.
This increased demand supports a price rise, provided other factors
remain constant. However, usually refineries are well stocked to meet
this increased demand.
- Storage also plays
an important role in trade patterns and prices. When inventories are
full, this ready availability of large supplies drives down the price.
In contrast, when stocks are relatively low, prices tend to increase.
- Disruptions in
production due to extreme weather or other unforeseen events can lead
to prices picking up.
1 US Barrel = 42 US Gallons
1 US Barrel = 158.98 litres
1 MT = 7.33 barrels
Note: Measurement of barrels per tonne
vary from origin to origin