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Gasoline Marketing in the USA

Gasoline has powered America's love affair with the automobile for the last one hundred years.  Despite the promise of such alternative fuels as hydrogen, natural gas, and electricity; gasoline is likely to continue as America's predominant motor fuel during the twenty-first century.

Every day 360,000,000 gallons of gasoline are sold to the motoring public at nearly 200,000 service stations, convenience stores and other petroleum facilities scattered throughout the country.  The path gasoline follows from the oil field to the refinery, and then onto the neighborhood fueling station represents a complex logistical system involving economic players ranging from the world's largest industrial corporations to single-station dealer-owners.

Crude Oil is the "raw material" of gasoline.  Crude is converted into gasoline in a complex, catalytic refining process that breaks the oil down into useful constituents including gasoline, diesel fuel, kerosene, jet fuel, asphalt and home heating oil. On the map below each red square represents a refinery.  A quick study of the map reveals the scale and breadth of the refining industry as well as its obvious concentration in the Gulf Coast region of Texas and Louisiana.  While major integrated oil companies with names most Americans recognize (Exxon, Shell, Chevron) dominate the refining industry, a large portion of the industry is controlled by independent or "merchant" refiners such as Valero, Tosco and Koch Industries. 

Linking the refineries to markets is a dense network of product pipelines, which run from the Gulf Coast and Southwest regions to the densely populated Northeast and Midwest.  Gasoline is also delivered to some areas of the country by rail or barge traffic; note the absence of pipelines serving Florida.

The next stop on gasoline's path to your car is the product terminal.  Fed by pipelines, barges or rail traffic, these terminals collect and store gasoline in large tank farms.  Most major metro areas have several terminals serving the market.  Frequently major oil companies share the use of a single terminal with each other via exchange agreements.  Consequently your Shell gasoline may have originated from an Exxon terminal.

At the terminal gasoline is loaded onto transporters at a rack loading facility.  It is at this point that oil companies typically add their proprietary additives such as Techron for Chevron or special detergents for Mobil brand gasoline.  A transporter can carry between eight and nine thousand gallons of gasoline. The tanker is divided into a series of compartments which prevents the different octane ratings (93-89-87) of gasoline from mixing.

The gasoline is then delivered to a service station or convenience store and dropped into a series of underground storage tanks.  Advances in technology allow station operators to monitor the tanks for leaks.  Multiple containment barriers to prevent catastrophic or persistent leaks of fuel from the tanks or lines into the groundwater.  Gasoline is next pumped into your car's fuel tank via dispensers which today may host such useful conveniences as credit card acceptors and video screens.

The legal and financial relationships involved in this process are as complex and varied as the physical path gasoline takes from the oil well to your tank.  Its not uncommon for a given lot of gasoline to be bought and sold dozens of times during its two to six month journey from the ground to your car.  Such complex financial instruments as derivatives, futures and swaps speed the buying and selling of gasoline around the clock in such global finance centers as New York, Chicago, London and Singapore.  Although market-driven supply and demand largely determines the price of gasoline on a daily basis; governmental action plays a significant role as well in the form of excise and sales taxes, environmental regulations and the actions of the world's most influential cartel - OPEC or the Organization of Petroleum Exporting Countries.

On a local level the service station or convenience store may be owned by a major oil company, a large distributor or jobber or an independent marketer or dealer.  Consequently, the price of the gasoline you buy may have been set by an Chevron official in Houston, Texas, a jobber based in the next town, or the dealer who owns and operates the station.

Most dealers that sell gasoline under a major oil brand set their retail price based on what their supplier charges them.  When your neighborhood dealer raises his price, its usually the result of his cost supplier increasing his buying price.  The price the dealer pays for the fuel may be set by his seller; either the oil company or the oil company's jobber.  In such a case his or her's buying price is known as a dealer tank wagon price or DTW.  Such a dealer is commonly referred to as a DTW Dealer.  A second, and equally common, means of setting the dealer's buying price is by basing it on a fixed interval over a "rack" or terminal price set by a party other than the supplier .  This rack plus pricing is commonly employed when a dealer is purchasing gasoline from a branded distributor or jobber.  Finally some dealers do not set the retail price of fuel at all, but rather they are paid a fixed amount on each gallon sold.  In this case the dealer is commonly referred to as a Commission Agent Dealer.  The commission such dealers earn varies but typically ranges from two to five cents per gallon.

Finally, dealers who sell unbranded gasoline purchase motor fuel from any number of jobbers, refiners or resellers.  Because they are not affiliated with a major oil company they can solicit bids from different suppliers on a delivery-by-delivery basis.  Such arrangements can enable the independent to purchase gasoline much more cheaply than their branded dealer competitors.  On the downside, during periods of supply shortage the unbranded buyer is sometimes left without product or is forced to pay prices in excess of his branded competitor's cost or even their posted retail price.

Finally, the purchase of gasoline is one of the most common transactions a consumer will enter into on any given day. This transaction is usually conducted close to one's home or work.  Despite the local nature of this business, events overseas have a dramatic impact on the price and supply of this everyday, essential commodity.

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