Gasoline  

Major Characteristics

  • 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.

 

Global Scenario

  • 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 gasoline.

 

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.

 

Indian Scenario

  • 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% increase.
  • 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.

 

Measurement

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