Cheap Gas

Thursday, March 31, 2005 | 06:53 AM

The impact of Oil is unmistakeable -- from crimping consumer spending to affecting major purchase decisions to weighing on equities -- it is neck and neck with interest rates for the most influential market factor lately.

The WSJ notes that high oil prices is crimping SUV sales. The big, inefficient and deadly vehicles (which always seem to be in my way) are Detroit's most profitible cash cow. Don't think the secular bull market in energy over the past few years hasn't contributed to GM's woes.

Wsj_suv_fuel03212005184708And yet, Gasoline remains cheap. That's right, it is a relatively inexpensive commodity. It takes 100 million years to create; Then it needs to be explored and found, drilled into and pumped out of the ground, shipped, refined in gasoline, then transported to your local gas station where some guy pumps it into your car for about two and half bucks a gallon -- and thats for high octane premium.

(Sold to me -- I think its a steal).

Hey, its not like you don't have other options. The Journal and Consumer reports put out a chart of "most fuel-efficient vehicles by category." There are lots of hybrid models coming out. You could go pure electric. Or, you can adapt your driving habits to be more fuel efficient (I drive a stick, but not for that reason).

As a kid who grew up loving muscle cars, I assumed that by the time I was 40 gas would be $5 a gallon (which it is in Europe). So I don't complain about gas under $3. I tank up  thankfully. Then I turn off the dynamic skid control, lay a patch of rubber and carve up some twisty back roads.  That much fun for that little money is a bargain at twice the price.

How cheap is this drilled, transported, refined gasoline? Cheaper than water: 


Other "Refined" Products Compared with Gasoline
:

Product Unit Cost Price per Gallon
  Lipton Ice Tea    $1.19/16 oz  $9.52 per gallon
  Ocean Spray $1.25/16 oz  $10.00 per gallon
  Gatorade  $1.59 /20 oz    $10.17 per gallon
  Diet Snapple
(preferably Peach) 
$1.29/16 oz    $10.32 per gallon
  Evian water $1.49 /9 oz    $21.19 per gallon
  Whiteout
$1.39 /7 oz      $25.42 per gallon
  Brake Fluid $3.15/12 oz    $33.60 per gallon
  Scope  $0.99/1.5 oz    $84.48 per gallon
  Vick's Nyquil    $8.35/6 oz    $178.13 per gallon
  Pepto Bismol   $3.85/4 oz    $123.20 per gallon


$21.19 for WATER - and the buyers don't even know the source. No wonder Evian spelled backwards is Naive.

Be glad your car doesn't run on Scope, Whiteout, Pepto Bismal or Nyquil.

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UPDATE: April 1, 2005  11:45am

Yes, I was being a bit snarky in my description of Gasoline as cheap.

If you are of middle income or higher, than Gas is indeed an inexpensive part of your budget. However, if you are on a tight budget, than its an increasingly burdensome expense lately.

We see this in the same store numbers from Wal Mart and Target -- WMT in particular -- as the stock has made fresh 52 week lows; their clients are much more price sensitive than Target's  . . .

>>

Sources:
Rising Gasoline Prices Threaten Viability of Biggest SUVs
Jeffrey Ball And Joseph B. White
The Wall Street Journal
March 22, 2005; Page B1
http://online.wsj.com/article/0,,SB111145802324985959,00.html

Thursday, March 31, 2005 | 06:53 AM | Permalink | Comments (41) | TrackBack (0)
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Comments

It seems silly to compare prices of highly marketed name brand products against gasoline. For example, doesn't the corn in a $4 box of Kelloggs corn flakes cost about 4cents. Evian is a brand. It is fashion not H2O. Nobody in the US sells gasoline as a brand name anymore. AMOCO did make better gasoline (I new a Director of the research labs who told me about the difference in quality between gasolines.) But low and behold, BP buys AMOCO and because the quality marketing of AMOCO branded gasoline didn't get higher retail prices, BP killed the AMOCO brand (recall the crytal clear gasoline TV ads AMOCO had.). Forget synergies, if AMOCO brand was worth 2cents more per gallon, BP would not have killed this brand.

Municipal water prices compared to gasoline (or oil) is an interesting comparison, especially since we view water as a renewable resource. Maybe water's higher price has to do with the monopoly of water service. Especially since I find municipal water to have an after taste that is not pleasant in my community, here in Florida; in other words high price, low quality.

Posted by: milton heath | Mar 31, 2005 9:10:51 AM

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