I just refueled my truck. I paid almost $ 2.60 a gallon, which seems expensive to me.
It’s hard to believe that prices this summer have been the highest since 2014. We’ve had almost four years of low gasoline prices … or something that feels low.
However, based on the price of oil, we now pay for gasoline on a relative basis more than in 2008.
Quite a bit more. It makes me think there is an opportunity for investment.
Let me show you …
Something strange is happening with gasoline
The price of oil is only 45% of the cost of gasoline. The rest are taxes (21%), processing costs (18%) and distribution (16%).
However, something strange is happening with the price of gasoline. We see this from a simple comparison: how many liters of gasoline can be bought for one barrel of oil.
In theory, this ratio should not change much. However, something is wrong with the price of gasoline. As oil prices have declined since 2008 to date, gasoline prices have risen compared to the price of oil.
Gasoline has risen in price relative to the price of oil.
Oil refiners today are a good choice
By 2017, the price of oil was 62% of the cost of gasoline. But back in 2009, it took 50 liters of gasoline to pay for one barrel of oil. Given that a barrel of oil is only 42 liters, something failed.
When oil prices soar, it is difficult for refiners to get gasoline at a profit. This is because as gasoline prices rise, consumers save.
In 2009, the U.S. had the lowest mileage since 2003. This forces refiners to keep the price of gasoline low, even paying a high price for oil.
However, when oil prices fell in 2016, refineries harvested the ground, destroying consumers. They took more gasoline … lowering the ratio and increasing profits.
A giant refiner Valero Energy Corp. its revenues fell from $ 113 billion in 2008 to $ 63 billion in 2009. From 2013 to 2015, as prices fell, Valero’s revenue rose from $ 5.7 billion to $ 8.2 billion. This was a 44% increase in profits, even as oil prices plummeted from $ 100 to $ 30 a barrel.
Today we are witnessing something similar. As oil prices fall from a recent high of $ 66 to $ 60 and below, we can expect gasoline prices to fall more slowly. This means that this year the refiners will work well.
And the sector must continue to grow well. And the recent rollback makes the oil refinery attractive today.
If you want to direct money to work in oil without directly affecting the price of oil, this is a good choice today.