Oil-to-Gas Multiplier?

CollegeTrader33 · Jul 25, 2008

Does any one know if there is some sort of Price of Oil-to-Price of gas multiplier?

For example crude's price raises $1.00, which then forces gas prices to raise by $.XX.

Just a random thought that popped in my head. Any answers?

PAPA ROACH · Jul 25, 2008

crude trades by the barrel (42 gallons). Gasoline trades by the gallon.

$1 move in crude is equal to .0238 in gasoline if the crack stays static.

ScapGF · Jul 25, 2008

Quote from PAPA ROACH:

crude trades by the barrel (42 gallons). Gasoline trades by the gallon.

$1 move in crude is equal to .0238 in gasoline if the crack stays static.

That makes sense to me, but it isn't playing out in the market. For example, crude is down approximately 17% off of its high. Now, gasoline at the pump topped off at $4.12/gallon and is currently at $4.00

But if gas were down 17% off of its highs then that would make it $3.42/gallon.

Clearly there is a lag involved so we are going to see lowe prices at the pump if the price of oil remains constant at today's level. But it doesn't seem to me like it would go to $3.42

Why is that?

ScapGF · Jul 25, 2008

Quote from CollegeTrader33:

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Just a random thought that popped in my head. Any answers?

I should tell you to go look it up in a library. You know, because that would actually help you solve your problem.

polpolik · Jul 25, 2008

I'm not doing exact calculations here but you're comparing the pump prices to the futures price of crude.

Compaing the futures price using RB (gasoline), it topped around 3.62 if memory serves me right. Today, it closed at around 3.04, that's roughly around 16%.

Again though, there is no static multiplier because of varying crack spread.

Quote from ScapGF:

That makes sense to me, but it isn't playing out in the market. For example, crude is down approximately 17% off of its high. Now, gasoline at the pump topped off at $4.12/gallon and is currently at $4.00

But if gas were down 17% off of its highs then that would make it $3.42/gallon.

Clearly there is a lag involved so we are going to see lowe prices at the pump if the price of oil remains constant at today's level. But it doesn't seem to me like it would go to $3.42

Why is that?

ScapGF · Jul 27, 2008

That clears it up more, thanks.

cstfx · Jul 27, 2008

Gas in the pump will never go down as quickly as the futures price because the station owner will not sell his gasoline for a price that is cheaper than what he paid for it. This is why retail gas always lags the market on the way down.

(Now up is a different story!)

RiceRocket · Jul 28, 2008

Exactly, there's a 1-2 week lag between market prices and retail prices at the pump (as inventories get cleared). I typically look at the gasoline futures and add a dollar to that to predict what pump prices should be. The other issue is, we may see a longer lag for lower prices as retail stations try to gouge to make up for the tight profits in the last 6 months. As prices went up, it was much more difficult for them to sell the premium gasoline, which is where they make the most spread. So now, you may see prices stay high for a while.

blackjack007 · Jul 28, 2008

Quote from PAPA ROACH:

crude trades by the barrel (42 gallons). Gasoline trades by the gallon.

$1 move in crude is equal to .0238 in gasoline if the crack stays static.

there's no simple fixed multiplier because you're comparing apples & oranges.

crude futures are the predicted future price of wholesale crude.

retail gas price at the pump is wholesale gas + profit + taxes. some of the taxes are %-based and some are fixed.

it's impossible to have a fixed multiplier due to some of the taxes being static. the best you could ever do is a multiplier between wholesale crude and wholesale gas.

PAPA ROACH · Jul 28, 2008

Quote from blackjack007:

there's no simple fixed multiplier because you're comparing apples & oranges.

crude futures are the predicted future price of wholesale crude.

retail gas price at the pump is wholesale gas + profit + taxes. some of the taxes are %-based and some are fixed.

it's impossible to have a fixed multiplier due to some of the taxes being static. the best you could ever do is a multiplier between wholesale crude and wholesale gas.

These are both futures contracts.