1 00:00:10,080 --> 00:00:14,600 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,720 --> 00:00:19,840 Speaker 1: I'm Joe Wisenthal. Unfortunately my co host Tracy Alloway is 3 00:00:19,920 --> 00:00:25,480 Speaker 1: off today. Nonetheless, we're gonna hopefully have an important conversation 4 00:00:25,680 --> 00:00:30,120 Speaker 1: about gasoline. It's been on this pretty big tumble over 5 00:00:30,160 --> 00:00:34,240 Speaker 1: the last two months, but I still sense that, you know, okay, 6 00:00:34,520 --> 00:00:36,640 Speaker 1: it's sort of tied to the price of oil. Oil 7 00:00:36,680 --> 00:00:39,120 Speaker 1: prices have come in, but it feels like there's a 8 00:00:39,120 --> 00:00:41,600 Speaker 1: lot more to it than just the oil price. It 9 00:00:41,680 --> 00:00:45,720 Speaker 1: certainly doesn't move and just lockstep with oil. There's refining, 10 00:00:46,280 --> 00:00:50,760 Speaker 1: there's regional variations, there's variations from one gas station to 11 00:00:50,920 --> 00:00:54,880 Speaker 1: another literally right next door. So there's at least to me, 12 00:00:55,120 --> 00:00:58,320 Speaker 1: still there's still a lot of mystery about like why 13 00:00:58,440 --> 00:01:01,319 Speaker 1: the price of gas is what it is. Why does 14 00:01:01,320 --> 00:01:04,640 Speaker 1: it always seem to end in ns. I've never gotten 15 00:01:04,680 --> 00:01:07,440 Speaker 1: an answer to that, whether it's to ninety nine or 16 00:01:07,720 --> 00:01:10,640 Speaker 1: nine or four ninety nine seems to be popular, all 17 00:01:10,680 --> 00:01:13,679 Speaker 1: these things. You know, gas is so central's so central 18 00:01:13,760 --> 00:01:17,360 Speaker 1: the economy. Ever since gas started going down, prices started 19 00:01:17,360 --> 00:01:20,800 Speaker 1: going up. Biden's approval ratings started ticking up when gas 20 00:01:20,800 --> 00:01:24,080 Speaker 1: prices started following, and of course vice versa. The price 21 00:01:24,080 --> 00:01:28,200 Speaker 1: of gas feels like it's determinant of almost everything these 22 00:01:28,280 --> 00:01:31,360 Speaker 1: days in American life. And so why do we learn, 23 00:01:31,480 --> 00:01:35,920 Speaker 1: like what causes the price of gasoline? So to answer 24 00:01:36,000 --> 00:01:38,080 Speaker 1: all of our questions or I guess in this case, 25 00:01:38,240 --> 00:01:41,120 Speaker 1: just all of my questions. I want to bring in 26 00:01:41,240 --> 00:01:44,679 Speaker 1: Patrick to Han. He has the head of petroleum analysis 27 00:01:44,720 --> 00:01:47,960 Speaker 1: at gas Buddy, which is a service that provides price 28 00:01:48,000 --> 00:01:50,920 Speaker 1: tracking for consumers, tells them where the different prices are 29 00:01:51,200 --> 00:01:54,640 Speaker 1: at different stations around them. He's been at gas Buddy 30 00:01:54,680 --> 00:01:58,320 Speaker 1: for thirteen years. He knows everything about the price of gasoline, 31 00:01:58,360 --> 00:02:01,240 Speaker 1: and if you follow him on Twitter, he is always 32 00:02:01,280 --> 00:02:05,000 Speaker 1: answering in a pretty direct manner what's going on with gasoline. 33 00:02:05,080 --> 00:02:08,799 Speaker 1: And when he's when prices going up, Republicans love him 34 00:02:09,040 --> 00:02:12,480 Speaker 1: and talk about how terrible the White House is doing, 35 00:02:12,960 --> 00:02:15,840 Speaker 1: and when the price is going down, everybody flips sides. 36 00:02:16,320 --> 00:02:18,880 Speaker 1: And meanwhile he keeps it a political and just says, 37 00:02:19,120 --> 00:02:22,200 Speaker 1: this is going on with gasoline, even though it's so 38 00:02:22,200 --> 00:02:25,600 Speaker 1: so central to what's going on. So Patrick, thank you 39 00:02:25,680 --> 00:02:29,160 Speaker 1: so much for coming on odd lots, Thanks for having me. 40 00:02:29,240 --> 00:02:32,360 Speaker 1: It's certainly always fun, you know, when prices go up 41 00:02:32,440 --> 00:02:35,000 Speaker 1: or down to see the movements and watch all the 42 00:02:35,040 --> 00:02:38,080 Speaker 1: politicians change sides, right, And in one minute it's great 43 00:02:38,120 --> 00:02:40,160 Speaker 1: and the next it's not. That I mean that is 44 00:02:40,200 --> 00:02:42,840 Speaker 1: by pressure just for watching your Twitter handle, Like you're 45 00:02:42,960 --> 00:02:46,200 Speaker 1: like talking about the price of gasoline, and suddenly you 46 00:02:46,240 --> 00:02:50,840 Speaker 1: see so viscerally how central gasoline is to say, American politics, 47 00:02:50,960 --> 00:02:53,600 Speaker 1: by essentially like who is attacking you at any given 48 00:02:53,639 --> 00:02:56,919 Speaker 1: moment for just for just tweeting out the news. Yeah, 49 00:02:57,160 --> 00:02:59,520 Speaker 1: that's that's really true. People have a problem with prices 50 00:02:59,560 --> 00:03:01,079 Speaker 1: going up, and they have a problem with them then 51 00:03:01,200 --> 00:03:03,959 Speaker 1: coming back down. And you know one side likes when 52 00:03:04,000 --> 00:03:07,000 Speaker 1: prices go up or down. It's you know, it's become 53 00:03:07,120 --> 00:03:09,440 Speaker 1: very political. We'll just say it that way. Well, let 54 00:03:09,440 --> 00:03:11,400 Speaker 1: me ask you a question that is I don't think 55 00:03:11,480 --> 00:03:15,160 Speaker 1: political at all, but so it's a super basic question, 56 00:03:15,200 --> 00:03:17,959 Speaker 1: but is at the core of what you do with gas, buddy, 57 00:03:18,200 --> 00:03:19,840 Speaker 1: And I also think it can maybe help us like 58 00:03:19,880 --> 00:03:23,000 Speaker 1: almost like work backwards and figuring out the price of gas. 59 00:03:23,040 --> 00:03:26,720 Speaker 1: But if if your app essentially compares, well, what is 60 00:03:27,000 --> 00:03:30,440 Speaker 1: gas at this corner station first, maybe what you could 61 00:03:30,440 --> 00:03:33,320 Speaker 1: get if you drive three blocks away or ten blocks away. 62 00:03:33,720 --> 00:03:36,840 Speaker 1: It immediately raised the question like, why is guess the 63 00:03:36,880 --> 00:03:39,880 Speaker 1: price of gasoline different at one station to another? Why 64 00:03:39,960 --> 00:03:42,800 Speaker 1: is there variation within gas station is very close to 65 00:03:42,800 --> 00:03:46,320 Speaker 1: each other? Well, and it's it's really loaded, uh and 66 00:03:46,480 --> 00:03:49,960 Speaker 1: very complex. I'll try to dumb it down. But essentially, gasoline, 67 00:03:50,000 --> 00:03:54,200 Speaker 1: like oil and other commodities, the prices that stations are 68 00:03:54,240 --> 00:03:57,200 Speaker 1: paying will change on a daily basis. There may be 69 00:03:57,240 --> 00:04:02,640 Speaker 1: different suppliers, there's different competitors. So essentially at the station level, 70 00:04:02,840 --> 00:04:05,480 Speaker 1: stations are all paying something different depending on the timing 71 00:04:05,480 --> 00:04:08,160 Speaker 1: of how much they're buying, who they're buying from. And 72 00:04:08,240 --> 00:04:10,360 Speaker 1: with oils so volatile this year, because of a lot 73 00:04:10,360 --> 00:04:13,240 Speaker 1: of these high level factors recovered from COVID, Russia's war 74 00:04:13,280 --> 00:04:16,960 Speaker 1: in Ukraine, the overall economy, the price of oil and 75 00:04:17,040 --> 00:04:21,160 Speaker 1: gasoline has been gyrating violently. So one station may get 76 00:04:21,160 --> 00:04:24,200 Speaker 1: a twenty five cents again less than another, and so 77 00:04:24,279 --> 00:04:27,480 Speaker 1: that goes into you know, these various hotspots. But stations 78 00:04:27,560 --> 00:04:30,000 Speaker 1: also when prices have been declining as they've been for 79 00:04:30,839 --> 00:04:34,600 Speaker 1: the last nine weeks, stations have incredible latitude to either 80 00:04:34,680 --> 00:04:37,440 Speaker 1: lower their prices very quickly as their cost goes down, 81 00:04:38,200 --> 00:04:40,800 Speaker 1: or kind of more slowly depending on if they got 82 00:04:40,839 --> 00:04:43,480 Speaker 1: the timing right this year, stations may have a different 83 00:04:43,480 --> 00:04:45,960 Speaker 1: financial position, that is, they may be hurting when prices 84 00:04:45,960 --> 00:04:49,279 Speaker 1: went up because, as many people do not know, it's 85 00:04:49,360 --> 00:04:51,679 Speaker 1: oftentimes very hard to be the first one to pass 86 00:04:51,720 --> 00:04:54,080 Speaker 1: along the price increase, so stations take it on the 87 00:04:54,120 --> 00:04:57,040 Speaker 1: chim one prices go up, and when prices go down, 88 00:04:57,360 --> 00:04:59,400 Speaker 1: they're in less of a hurry to lower prices, and 89 00:04:59,440 --> 00:05:02,159 Speaker 1: that can some of these hotspots where there may be 90 00:05:02,200 --> 00:05:05,560 Speaker 1: in a very aggressive gas station that wants to lower prices, 91 00:05:05,600 --> 00:05:08,080 Speaker 1: and some others may not be so aggressive, and that 92 00:05:08,520 --> 00:05:11,680 Speaker 1: can cause a lot of variety and what you're paying locally. 93 00:05:11,920 --> 00:05:15,239 Speaker 1: I don't know if there is an average gasoline station. 94 00:05:15,279 --> 00:05:17,360 Speaker 1: I'm sorry, these are gonna be all very do we 95 00:05:17,440 --> 00:05:20,880 Speaker 1: might just do thirty minutes of like extremely rudimentary questions 96 00:05:20,880 --> 00:05:23,080 Speaker 1: about how gasoly works. So I hope that's cool, But 97 00:05:23,400 --> 00:05:26,640 Speaker 1: I don't know if there is an average gas station. 98 00:05:26,800 --> 00:05:30,360 Speaker 1: But to the best you can answer the question, how 99 00:05:30,440 --> 00:05:34,839 Speaker 1: often do gas stations themselves get a refill and how 100 00:05:34,880 --> 00:05:37,040 Speaker 1: close to the bottom of their own tanks do they 101 00:05:37,040 --> 00:05:41,200 Speaker 1: get typically before a refill? Like, how do gas stations 102 00:05:41,279 --> 00:05:45,400 Speaker 1: play that? Well, it depends on the size of the 103 00:05:45,440 --> 00:05:48,480 Speaker 1: gas station. Some mom and pops may simply order when 104 00:05:48,480 --> 00:05:52,120 Speaker 1: they need more, whereas the pros, the companies that may 105 00:05:52,160 --> 00:05:55,240 Speaker 1: own many stations may have somebody that buys fuel and 106 00:05:55,279 --> 00:05:57,520 Speaker 1: looks at markets to know when to time it right. 107 00:05:57,880 --> 00:06:00,040 Speaker 1: It's like an airfare, right the airfare has change on 108 00:06:00,120 --> 00:06:02,080 Speaker 1: a daily basis, and if you want to fly, you're 109 00:06:02,120 --> 00:06:04,720 Speaker 1: just gonna buy airfare, Whereas if you're buying a lot 110 00:06:04,760 --> 00:06:07,360 Speaker 1: of airfare, you may weigh a day, a day or two. 111 00:06:07,520 --> 00:06:11,000 Speaker 1: So you know, at the station level, stations are kind 112 00:06:11,000 --> 00:06:14,640 Speaker 1: of adjusting their prices looking at that. But you know, 113 00:06:14,720 --> 00:06:17,720 Speaker 1: it's again going back to the volatility. It's it's been 114 00:06:17,800 --> 00:06:20,520 Speaker 1: such a crazy year that not every station has that 115 00:06:20,600 --> 00:06:24,120 Speaker 1: competitive advantage where somebody can just watch the price that 116 00:06:24,200 --> 00:06:27,800 Speaker 1: they pay. So bigger stations that have more stores may 117 00:06:27,839 --> 00:06:30,599 Speaker 1: have a leg up in terms of having, you know, 118 00:06:30,680 --> 00:06:33,200 Speaker 1: somebody that may be in a position to simply watch 119 00:06:33,279 --> 00:06:35,400 Speaker 1: the markets and to be able to time purchases right. 120 00:06:35,480 --> 00:06:39,360 Speaker 1: But when prices have gone down, it's all very subject 121 00:06:39,360 --> 00:06:42,320 Speaker 1: to competition. How quickly prices go down, There's there's just 122 00:06:42,360 --> 00:06:45,080 Speaker 1: so many things that go into it. But ultimately, now 123 00:06:45,120 --> 00:06:47,760 Speaker 1: we've seen prices go down for nine weeks, and I 124 00:06:47,800 --> 00:06:49,720 Speaker 1: think the most frequent thing I've been asked in the 125 00:06:49,800 --> 00:06:53,200 Speaker 1: last nine weeks is why is X town you know 126 00:06:53,640 --> 00:06:55,880 Speaker 1: X since per gown lower than mine? And it really 127 00:06:55,880 --> 00:06:58,080 Speaker 1: has to do with just competition and whether or not 128 00:06:58,120 --> 00:07:01,400 Speaker 1: there's like a status quo or if there's a wholesale club, 129 00:07:01,520 --> 00:07:05,320 Speaker 1: if they're aggressive and lowering price. It certainly varies widely. 130 00:07:05,480 --> 00:07:08,680 Speaker 1: I was wondering about the competition question. If there's like 131 00:07:09,600 --> 00:07:12,640 Speaker 1: a town with lots of gas stations and lots of 132 00:07:12,680 --> 00:07:16,440 Speaker 1: consumer choice, can you sort of empirically show that there 133 00:07:16,520 --> 00:07:20,840 Speaker 1: is more gas price volatility or maybe more aggressiveness on 134 00:07:20,920 --> 00:07:25,240 Speaker 1: pricing than say a single gas station like in the 135 00:07:25,280 --> 00:07:28,400 Speaker 1: middle of Death Valley, California, that no one else can 136 00:07:28,480 --> 00:07:30,200 Speaker 1: you know it's your only chance to fill up for 137 00:07:30,200 --> 00:07:34,880 Speaker 1: another hundred miles. Well, it's really fascinating because oftentimes we 138 00:07:35,000 --> 00:07:39,240 Speaker 1: find that the solo gas stations by themselves are generally 139 00:07:39,280 --> 00:07:41,200 Speaker 1: the ones that may charge a little bit more. But 140 00:07:41,280 --> 00:07:45,080 Speaker 1: there are exceptions to the rule, and it may happen 141 00:07:45,120 --> 00:07:50,320 Speaker 1: more often than motorists realize that that there's an exception. 142 00:07:50,360 --> 00:07:52,560 Speaker 1: I think there's a couple stations that I watch that 143 00:07:52,640 --> 00:07:57,040 Speaker 1: are aggressively lowering prices, and they are all by themselves. 144 00:07:57,120 --> 00:08:00,840 Speaker 1: So I think the majority, like you said, if you're 145 00:08:00,840 --> 00:08:02,840 Speaker 1: in the if you're in the middle of of of 146 00:08:03,080 --> 00:08:06,120 Speaker 1: Death Valley, you have a cap of audience and prices 147 00:08:06,160 --> 00:08:09,440 Speaker 1: are more likely to be above average in that situation. 148 00:08:09,520 --> 00:08:11,440 Speaker 1: But there are some holdouts in the country that I 149 00:08:11,480 --> 00:08:14,840 Speaker 1: can say this station is solo, but it's also bringing 150 00:08:14,880 --> 00:08:19,600 Speaker 1: prices down in the majority of stations that surrounded miles away. 151 00:08:19,280 --> 00:08:22,120 Speaker 1: And and why would that be, like is it what? 152 00:08:22,120 --> 00:08:25,600 Speaker 1: What would be the reason why a gas station that 153 00:08:25,720 --> 00:08:29,200 Speaker 1: doesn't have a lot of competition in its proximity may 154 00:08:29,240 --> 00:08:32,200 Speaker 1: still be aggressive on pricing. They may want to pull 155 00:08:32,280 --> 00:08:35,160 Speaker 1: people in from a further distance away. You know, if 156 00:08:35,200 --> 00:08:37,400 Speaker 1: you're if you're a couple of miles down the road, 157 00:08:37,640 --> 00:08:41,240 Speaker 1: and and your station is not in the best geological 158 00:08:41,280 --> 00:08:44,560 Speaker 1: location to pull traffic in people that use the gas, 159 00:08:44,559 --> 00:08:46,360 Speaker 1: but at may see that you have a low price 160 00:08:46,400 --> 00:08:48,680 Speaker 1: two miles down the road, and so some of those 161 00:08:48,720 --> 00:08:55,160 Speaker 1: low prices can lure people in. Economists must always be wanting, uh, 162 00:08:55,280 --> 00:08:58,600 Speaker 1: they must always be trying to get your data, because 163 00:08:58,600 --> 00:09:01,679 Speaker 1: I could imagine there a lot of interesting sort of 164 00:09:01,720 --> 00:09:04,840 Speaker 1: like real world tests that can be seen from it 165 00:09:05,080 --> 00:09:10,960 Speaker 1: about the degree to which transparency in pricing effects markets themselves, 166 00:09:11,040 --> 00:09:14,040 Speaker 1: because you know, maybe like Okay, these days, you're like, oh, 167 00:09:14,080 --> 00:09:16,319 Speaker 1: I will drive two miles down the road to get 168 00:09:16,360 --> 00:09:19,160 Speaker 1: cheaper gas lane because the gas buddy app says I 169 00:09:19,200 --> 00:09:22,360 Speaker 1: could uh save ten cents a gallon or something like that. 170 00:09:22,640 --> 00:09:25,680 Speaker 1: But at one point in the past, consumers just didn't 171 00:09:25,720 --> 00:09:29,440 Speaker 1: even have that knowledge, and so perhaps pricing discrepancies or 172 00:09:29,440 --> 00:09:33,280 Speaker 1: divergences could persist longer. Yeah, you know, there is a 173 00:09:33,320 --> 00:09:36,360 Speaker 1: lot of market for this data potentially, you know, if 174 00:09:36,400 --> 00:09:39,120 Speaker 1: not only from you know, entities that want to watch 175 00:09:39,160 --> 00:09:42,680 Speaker 1: this and better understand it, but stations may you know, 176 00:09:42,760 --> 00:09:45,080 Speaker 1: want to to look at their own station data and 177 00:09:45,120 --> 00:09:47,640 Speaker 1: compare it to their competition as well to make sure 178 00:09:47,640 --> 00:09:49,840 Speaker 1: they have an edge. So I mean there's a heavy 179 00:09:49,920 --> 00:09:53,040 Speaker 1: market for this. I mean, it's information, and you know, 180 00:09:53,120 --> 00:09:57,880 Speaker 1: gas prices are so prevalently priced you can't escape them, 181 00:09:58,000 --> 00:10:00,480 Speaker 1: and and so yeah, I mean I think there probably 182 00:10:00,520 --> 00:10:02,199 Speaker 1: is a lot of interest from the consumer level to 183 00:10:02,240 --> 00:10:05,480 Speaker 1: the business that wants to be as aggressive as possible 184 00:10:05,520 --> 00:10:08,320 Speaker 1: and they want to know that their price is the lowest, right. 185 00:10:08,360 --> 00:10:10,559 Speaker 1: I think that's if anything is true of a lot 186 00:10:10,559 --> 00:10:13,320 Speaker 1: of stations is they want to compete, They want to 187 00:10:13,320 --> 00:10:15,000 Speaker 1: have the lowest price, and they want to make sure 188 00:10:15,000 --> 00:10:19,479 Speaker 1: their prices below the competition. What about the question of margins? 189 00:10:19,520 --> 00:10:25,160 Speaker 1: How much do gas stations make actually selling retail gasoline 190 00:10:25,240 --> 00:10:30,280 Speaker 1: above wholesale typically? And then does it change much for 191 00:10:30,520 --> 00:10:34,720 Speaker 1: gas stations that have significant ancillary businesses. Some gas stations 192 00:10:34,720 --> 00:10:38,400 Speaker 1: are literally just like a guy in a little you know, 193 00:10:38,600 --> 00:10:42,520 Speaker 1: the tiny building and one pump, whereas then you have 194 00:10:42,559 --> 00:10:45,240 Speaker 1: others with lots of pumps. But then there's a food 195 00:10:45,280 --> 00:10:49,440 Speaker 1: court inside the gas gas station and gifts and other 196 00:10:49,520 --> 00:10:52,600 Speaker 1: things like that, in which case bringing people in, maybe 197 00:10:52,640 --> 00:10:55,040 Speaker 1: you lose money on the gas, but you can make 198 00:10:55,080 --> 00:10:58,080 Speaker 1: a lot of money on selling drinks and stuff like that. Well, 199 00:10:58,080 --> 00:11:00,280 Speaker 1: there's a perfect example. You mentioned food for it, and 200 00:11:00,280 --> 00:11:01,920 Speaker 1: I want right to it write. Some of the wholesale 201 00:11:01,920 --> 00:11:06,600 Speaker 1: clubs that exist, they will take a much thinner margin. 202 00:11:06,720 --> 00:11:08,959 Speaker 1: That is, they'll make five or ten cents a gallon 203 00:11:09,000 --> 00:11:11,600 Speaker 1: instead of twenty cents a gallon or even you know, 204 00:11:11,640 --> 00:11:14,680 Speaker 1: maybe fifteen cents to get you to the location, because 205 00:11:14,720 --> 00:11:17,280 Speaker 1: what better way to get you to their store to 206 00:11:17,320 --> 00:11:20,600 Speaker 1: buy fifty rolls of toilet paper or a forty eight 207 00:11:20,679 --> 00:11:23,280 Speaker 1: path of your favorite drink than to get you there 208 00:11:23,320 --> 00:11:26,400 Speaker 1: with a low price. So there is absolutely difference in agenda. 209 00:11:27,120 --> 00:11:29,520 Speaker 1: And some stations will have a lower price to get 210 00:11:29,559 --> 00:11:32,520 Speaker 1: you to their location, whether it's a wholesale club or 211 00:11:32,600 --> 00:11:35,960 Speaker 1: one of these large format gas stations that are extremely popular. 212 00:11:36,320 --> 00:11:38,920 Speaker 1: You know, they'll have a whole you know, slew of 213 00:11:38,920 --> 00:11:41,720 Speaker 1: of different food options. So price is a great way 214 00:11:41,720 --> 00:11:44,600 Speaker 1: to get people to your location. And then as you mentioned, 215 00:11:44,600 --> 00:11:47,280 Speaker 1: to go in the store where margins are higher, but 216 00:11:47,360 --> 00:11:50,800 Speaker 1: those locations they'll still make some money. It maybe five 217 00:11:51,160 --> 00:11:54,080 Speaker 1: fifteen cents a gallon compared to the competition could be 218 00:11:54,160 --> 00:11:57,079 Speaker 1: twenty to thirty cents. And now those margins even at 219 00:11:57,080 --> 00:11:59,880 Speaker 1: the big outlets, will vary depending on what's going on 220 00:12:00,080 --> 00:12:03,280 Speaker 1: you talk about, you know, the Russian invasion of Ukraine 221 00:12:03,280 --> 00:12:06,400 Speaker 1: and the wholesale price of of of oil and gasoline varying. 222 00:12:06,840 --> 00:12:09,800 Speaker 1: There will be times of the year, very brief times 223 00:12:09,840 --> 00:12:12,199 Speaker 1: that a station could make an excess of fifty cents 224 00:12:12,200 --> 00:12:16,479 Speaker 1: a gallon. Now that's not normal, right, that is extremely abnormal. 225 00:12:16,720 --> 00:12:18,280 Speaker 1: I would say that over the course of the year, 226 00:12:18,400 --> 00:12:21,520 Speaker 1: a well run station will average a margin of between 227 00:12:21,520 --> 00:12:24,680 Speaker 1: twenty and thirty cents a gallon, which isn't a whole lot. 228 00:12:24,760 --> 00:12:27,440 Speaker 1: And keep in mind, when prices are higher, they're going 229 00:12:27,480 --> 00:12:30,520 Speaker 1: to make less margin because those interchange fees, if you're 230 00:12:30,559 --> 00:12:33,400 Speaker 1: using a credit or debit card, there's a cost two 231 00:12:33,440 --> 00:12:36,680 Speaker 1: station owners that they don't often or all the time 232 00:12:36,720 --> 00:12:39,040 Speaker 1: pass along to you. And and that fee goes up 233 00:12:39,040 --> 00:12:40,959 Speaker 1: as the price of gasoline has been higher. Wait, I 234 00:12:41,000 --> 00:12:42,920 Speaker 1: hadn't even I hadn't even thought about that. So what 235 00:12:43,000 --> 00:12:47,080 Speaker 1: happens the higher the nominal price of gasoline, they have 236 00:12:47,160 --> 00:12:49,800 Speaker 1: to pay a higher higher check to the to the 237 00:12:50,000 --> 00:12:53,560 Speaker 1: to the credit card companies. Exactly, it's very much like 238 00:12:53,600 --> 00:12:55,560 Speaker 1: a commission. You know, if you sell a home that's 239 00:12:55,559 --> 00:12:57,880 Speaker 1: worth a million dollars, your commission two and a half percent, 240 00:12:58,240 --> 00:13:00,600 Speaker 1: a heck of a lot more so in a million 241 00:13:00,600 --> 00:13:03,000 Speaker 1: dollar home that is a hundred thousand dollar homes. So 242 00:13:03,040 --> 00:13:05,640 Speaker 1: as the price of gasoline goes up, those interchange fees 243 00:13:05,720 --> 00:13:09,440 Speaker 1: charged by credit card companies are taking more a bite 244 00:13:09,640 --> 00:13:12,960 Speaker 1: out of the station's profit. That's really interesting. I hadn't 245 00:13:13,000 --> 00:13:15,720 Speaker 1: I hadn't thought about that, So is it true? But 246 00:13:15,800 --> 00:13:18,720 Speaker 1: it is true sort of empirically that we can see 247 00:13:18,760 --> 00:13:23,400 Speaker 1: that the gas stations, if they're attached to something that 248 00:13:23,480 --> 00:13:26,640 Speaker 1: sells more, whether it's a large format gas station like 249 00:13:26,720 --> 00:13:29,040 Speaker 1: a BUCkies that people want to go into because they 250 00:13:29,040 --> 00:13:32,000 Speaker 1: have clean bathrooms and food, or a Costco or a 251 00:13:32,040 --> 00:13:35,199 Speaker 1: Walmart or maybe where maybe they'll sell you like, you know, 252 00:13:35,200 --> 00:13:37,800 Speaker 1: a bunch of rolls of toilet paper as well. Those 253 00:13:37,840 --> 00:13:41,240 Speaker 1: consistently have lower prices than a sort of small mom 254 00:13:41,280 --> 00:13:45,240 Speaker 1: and pop or a place that sells nothing but gas exactly. 255 00:13:45,600 --> 00:13:48,200 Speaker 1: Not only do they have the different agenda keep their 256 00:13:48,240 --> 00:13:50,719 Speaker 1: prices down, but they may have pricing power too. I mean, 257 00:13:51,280 --> 00:13:54,720 Speaker 1: there's definitely an incentive for a finer that's producing gasoline 258 00:13:55,000 --> 00:13:57,360 Speaker 1: to make a deal with a big club like a 259 00:13:57,440 --> 00:14:00,760 Speaker 1: Costco or BUCkies because they're volume through, but they can 260 00:14:00,800 --> 00:14:03,880 Speaker 1: help that refinery, you know, sell through more of its gasoline. 261 00:14:03,960 --> 00:14:07,680 Speaker 1: So those bigger stations, those bigger format stations sell more. 262 00:14:07,760 --> 00:14:10,800 Speaker 1: They can have a lower price because the refinery may 263 00:14:10,840 --> 00:14:13,840 Speaker 1: be more incentivized to make a better contract offer with 264 00:14:13,920 --> 00:14:16,040 Speaker 1: them as an outlet to get rid of that fuel. 265 00:14:16,280 --> 00:14:20,880 Speaker 1: Would these be national contracts that a company like Walmart 266 00:14:20,960 --> 00:14:23,800 Speaker 1: or Costco or BUCkies, which is I guess sort of regional, 267 00:14:24,120 --> 00:14:27,720 Speaker 1: but some sort of contract like a blanket contract that 268 00:14:27,760 --> 00:14:30,480 Speaker 1: would affect all of their locations, or would be a 269 00:14:30,520 --> 00:14:35,640 Speaker 1: series of contracts with regional refiners. You know, it can 270 00:14:35,680 --> 00:14:38,360 Speaker 1: be both. It depends on the scope of the refiner. 271 00:14:38,400 --> 00:14:41,600 Speaker 1: If that refiner has refineries in every region where the 272 00:14:41,640 --> 00:14:44,440 Speaker 1: store has outlets, it could be in every market. But 273 00:14:44,600 --> 00:14:47,720 Speaker 1: oftentimes that's not the case. You may not have a 274 00:14:47,760 --> 00:14:49,760 Speaker 1: shell refiner in the West Coast, but you may have 275 00:14:49,800 --> 00:14:52,600 Speaker 1: a shell refinery in Texas. So sometimes it may be 276 00:14:52,720 --> 00:14:56,560 Speaker 1: localized two different regions, depending on what refineries operated in 277 00:14:56,600 --> 00:15:15,560 Speaker 1: a given region. I want to get to more of 278 00:15:15,600 --> 00:15:19,040 Speaker 1: the sort of refining question and the degree to which 279 00:15:19,280 --> 00:15:22,200 Speaker 1: refining adds to the price of gasoline. But before we do, 280 00:15:22,360 --> 00:15:25,280 Speaker 1: you know, get you you offered tweeter like, oh, the 281 00:15:25,320 --> 00:15:27,880 Speaker 1: most common what is the most common price of gasoline 282 00:15:28,120 --> 00:15:31,960 Speaker 1: right now? We're recording this on August, But what's the 283 00:15:31,960 --> 00:15:36,040 Speaker 1: most common price of gasoline in America right now? Well, 284 00:15:36,120 --> 00:15:38,920 Speaker 1: let's take a look here. As I look where three 285 00:15:39,400 --> 00:15:43,120 Speaker 1: nine is the most common price across the US, and 286 00:15:43,160 --> 00:15:45,280 Speaker 1: they're all ending with the nine. I mean, why is that? 287 00:15:45,400 --> 00:15:47,440 Speaker 1: And that's just like yeah, yeah, so is that just 288 00:15:47,760 --> 00:15:50,280 Speaker 1: as obvious as it seems that It's like it looks 289 00:15:50,320 --> 00:15:53,200 Speaker 1: better to say three than four or three forty nine 290 00:15:53,240 --> 00:15:56,360 Speaker 1: than three fifty. It's like it really is, it really is? 291 00:15:56,440 --> 00:15:59,480 Speaker 1: You know, no hard I'd be hard pressed to find 292 00:15:59,520 --> 00:16:01,920 Speaker 1: any state and that ends in a zero, because why 293 00:16:02,080 --> 00:16:04,760 Speaker 1: ending a zero three fifty, for example, it sounds a 294 00:16:04,800 --> 00:16:07,920 Speaker 1: whole lot worse than three forty nine. So everyone's going 295 00:16:07,960 --> 00:16:10,560 Speaker 1: to take the nine instead of the zero. And you 296 00:16:10,680 --> 00:16:13,000 Speaker 1: never see a four oh one? Have you ever seen one? 297 00:16:13,960 --> 00:16:16,280 Speaker 1: I mean, I've seen a four oh one. It always 298 00:16:16,320 --> 00:16:18,480 Speaker 1: has me scratching my head, like why don't you stay 299 00:16:18,520 --> 00:16:20,480 Speaker 1: at four oh three and then make the jumps of three? 300 00:16:21,280 --> 00:16:26,440 Speaker 1: You know, that's really funny. So that's all psychology. How 301 00:16:26,520 --> 00:16:30,080 Speaker 1: much like sort of like broad regional difference is there 302 00:16:30,080 --> 00:16:34,520 Speaker 1: in America depending on whether, say you're in Iowa versus somewhere, 303 00:16:34,680 --> 00:16:37,480 Speaker 1: you know, in an expensive part of California. I know, 304 00:16:37,600 --> 00:16:40,480 Speaker 1: I'm pretty sure gasoline is very expensive in Hawaii or 305 00:16:40,520 --> 00:16:42,680 Speaker 1: it has to be uh has to be shipped in 306 00:16:43,080 --> 00:16:45,160 Speaker 1: maybe the I don't even know the word. How many 307 00:16:45,240 --> 00:16:49,280 Speaker 1: like price regions are there in the US. There's five, 308 00:16:49,600 --> 00:16:55,000 Speaker 1: and that's defined by an acronym PAD Petroleum Administration for 309 00:16:55,040 --> 00:16:57,200 Speaker 1: Defense District, and that goes back to world War two, 310 00:16:57,240 --> 00:17:00,600 Speaker 1: when we slice the country into five pieces for strategic purposes, 311 00:17:01,240 --> 00:17:04,639 Speaker 1: and now those those regions define you know, there's different 312 00:17:04,680 --> 00:17:06,960 Speaker 1: supply demand aspects in each one of those regions. And 313 00:17:07,000 --> 00:17:09,760 Speaker 1: to your point, each one of the regions has a 314 00:17:09,760 --> 00:17:13,119 Speaker 1: different price based on the supply and demand balance in 315 00:17:13,160 --> 00:17:16,520 Speaker 1: that region, and it's all defined by you may hear 316 00:17:16,560 --> 00:17:20,840 Speaker 1: about the IMAX the New York Mercantile Exchange, they trade gasoline, 317 00:17:20,880 --> 00:17:24,360 Speaker 1: and then under that every region trades at a different 318 00:17:24,480 --> 00:17:28,159 Speaker 1: basis to what that one overlying market is. And that 319 00:17:28,240 --> 00:17:30,760 Speaker 1: basis can be minus, meaning a region could have a 320 00:17:30,840 --> 00:17:34,119 Speaker 1: discount if they're well supplied and if things are running well, 321 00:17:34,440 --> 00:17:37,440 Speaker 1: some regions can have a premium or a search charge 322 00:17:37,520 --> 00:17:40,760 Speaker 1: based on its supply. Is extremely tight and every region 323 00:17:40,880 --> 00:17:43,040 Speaker 1: right now, as I look at it, between the highest 324 00:17:43,080 --> 00:17:45,520 Speaker 1: and lowest, there's about a fifty cent a gallon difference 325 00:17:45,560 --> 00:17:48,520 Speaker 1: on gasoline, while if you include the West Coast, it's 326 00:17:48,560 --> 00:17:53,600 Speaker 1: even more dramatic, a seventy centigallon difference between the cheapest market, 327 00:17:53,640 --> 00:17:55,520 Speaker 1: which is the Gulf Coast, and that's because there's a 328 00:17:55,520 --> 00:17:57,439 Speaker 1: lot of refineries there and there's a lot of supply, 329 00:17:58,000 --> 00:18:00,680 Speaker 1: and the West Coast, which is the highest is the opposite. 330 00:18:00,720 --> 00:18:03,240 Speaker 1: There's not a lot of refineries. They have special blends 331 00:18:03,240 --> 00:18:07,159 Speaker 1: of gasoline in California, So even there, you're going to 332 00:18:07,280 --> 00:18:09,960 Speaker 1: see a pretty wide gap between the nation's cheapest and 333 00:18:09,960 --> 00:18:12,879 Speaker 1: most expensive. Because even at the basis the base level, 334 00:18:13,280 --> 00:18:16,720 Speaker 1: there's a huge gap of gap between the lowest and 335 00:18:16,760 --> 00:18:19,880 Speaker 1: the highest region. So what is it in the Louisiana 336 00:18:20,080 --> 00:18:22,480 Speaker 1: pad right now? On what is it on the West Coast? 337 00:18:22,480 --> 00:18:25,360 Speaker 1: Like in terms of average prices, Well, you know, not 338 00:18:25,480 --> 00:18:31,480 Speaker 1: taking the consideration tax or pipeline terrorists, so transportation distribution. 339 00:18:31,840 --> 00:18:34,000 Speaker 1: The wholesale price in the Gulf Coast today is about 340 00:18:34,000 --> 00:18:36,960 Speaker 1: two fifty seven a gallon. Now, if you throw tax 341 00:18:36,960 --> 00:18:39,200 Speaker 1: and tarrasan that's where you get a lot of these states. 342 00:18:39,240 --> 00:18:41,600 Speaker 1: Texas right now the state wide average three forty two. 343 00:18:41,680 --> 00:18:44,400 Speaker 1: So you're always going to see a retail price that's 344 00:18:44,440 --> 00:18:46,879 Speaker 1: quite a bit higher because taxes usually slap on about 345 00:18:46,880 --> 00:18:50,040 Speaker 1: sixty cents a gallon, But that to fifty seven in 346 00:18:50,080 --> 00:18:53,919 Speaker 1: the Gulf Coast. In the San Francisco, the Northern California market, 347 00:18:53,960 --> 00:18:57,879 Speaker 1: California is broken to northern and southern. The Northern California market, 348 00:18:57,960 --> 00:19:01,879 Speaker 1: the same price of of what fuel they uses a gallon, 349 00:19:02,400 --> 00:19:05,840 Speaker 1: so two fifty seven and the cheapest community the Gulf 350 00:19:05,880 --> 00:19:10,040 Speaker 1: Coast and the most expensive market, which is northern California. 351 00:19:10,640 --> 00:19:14,480 Speaker 1: So the hierarchy of prices in the United States, like 352 00:19:14,560 --> 00:19:18,119 Speaker 1: you start with this nymex right, is that the r 353 00:19:18,200 --> 00:19:22,200 Speaker 1: bob future. That's exactly it. It's name x are Bob 354 00:19:22,520 --> 00:19:25,400 Speaker 1: is the foundation and everyone will trade at a premium 355 00:19:25,760 --> 00:19:29,720 Speaker 1: or a discount to that name x nmex are Bob contract. Okay, 356 00:19:29,800 --> 00:19:32,640 Speaker 1: so here's another question. I am looking right now at 357 00:19:32,640 --> 00:19:36,280 Speaker 1: the generic first month and imex are Bob contract. Take 358 00:19:36,320 --> 00:19:40,240 Speaker 1: our XP one commodity on the terminal. Now the price 359 00:19:40,359 --> 00:19:43,320 Speaker 1: is not quoted and pergune it's as to ninety is 360 00:19:43,359 --> 00:19:45,960 Speaker 1: the current price? What is that? Like? What is the 361 00:19:45,960 --> 00:19:49,440 Speaker 1: basic volume unit of that contract? How many guests? How 362 00:19:49,440 --> 00:19:55,120 Speaker 1: many gallons are there of those contracts? And and I'm 363 00:19:55,119 --> 00:19:57,480 Speaker 1: assuming you're looking at the front month right now showing 364 00:19:57,680 --> 00:20:04,200 Speaker 1: my screen this September of Yeah, looking at the specifications 365 00:20:04,240 --> 00:20:08,080 Speaker 1: of that contract. You're talking about forty two thousand gallons, 366 00:20:08,119 --> 00:20:11,280 Speaker 1: which is a thousand barrels. Is a contract that's kind 367 00:20:11,320 --> 00:20:15,200 Speaker 1: of the basic contract. Now the CME, which the Chicago 368 00:20:15,240 --> 00:20:18,439 Speaker 1: Mercantile Exchange NIMAX as well. They've done many contracts so 369 00:20:18,480 --> 00:20:20,880 Speaker 1: you don't have to bet as much, but or by 370 00:20:20,920 --> 00:20:23,399 Speaker 1: as much. But that's the base contract is a thousand 371 00:20:23,440 --> 00:20:26,840 Speaker 1: barrels of gasoline, which is forty two thousand gallons. Oh, 372 00:20:26,880 --> 00:20:28,600 Speaker 1: I see, I'm looking at it now. I'm looking at 373 00:20:28,640 --> 00:20:32,280 Speaker 1: the description of the contract. So there's forty two thousand gallons, 374 00:20:32,320 --> 00:20:34,680 Speaker 1: and it looks like one contract value is actually a 375 00:20:34,800 --> 00:20:39,679 Speaker 1: hundred and twenty two d and twenty six dollars for 376 00:20:39,760 --> 00:20:42,240 Speaker 1: one slug of gasoling. So the hierarchy goes. There's the 377 00:20:42,320 --> 00:20:47,119 Speaker 1: NIMAX price. Then there's the five PAD regions, in which 378 00:20:47,280 --> 00:20:50,000 Speaker 1: there's usually some sort of basis above that, although in 379 00:20:50,080 --> 00:20:52,000 Speaker 1: theory at times if there's a lot of inventory and 380 00:20:52,119 --> 00:20:55,520 Speaker 1: region that can be below. And then that's determined by 381 00:20:55,680 --> 00:20:59,920 Speaker 1: various pipelines, another cause of proximity to refineries. And then 382 00:21:00,040 --> 00:21:03,520 Speaker 1: and there are the state taxes. And there's one thing 383 00:21:03,560 --> 00:21:07,119 Speaker 1: you left out, and it's it's even another complicating factor. 384 00:21:07,560 --> 00:21:11,639 Speaker 1: Our BOB is reformulated gasoline. We call them kind of 385 00:21:11,640 --> 00:21:15,560 Speaker 1: the Bob's. It's a family. Our formulation of sea BOB 386 00:21:16,320 --> 00:21:20,080 Speaker 1: is conventional blend stock for oxygen at blending. That's what 387 00:21:20,119 --> 00:21:23,800 Speaker 1: BOB means blend stock for oxygen at blending, meaning that 388 00:21:23,880 --> 00:21:26,560 Speaker 1: you have to add uh an oxygen it to us 389 00:21:26,600 --> 00:21:30,199 Speaker 1: something like ethanol. We used to use MTB, but something 390 00:21:31,000 --> 00:21:34,240 Speaker 1: like that. And so you have our BOB reformulated, Sea 391 00:21:34,240 --> 00:21:39,840 Speaker 1: Bob conventional and out in California it's California are Bob. 392 00:21:39,960 --> 00:21:45,719 Speaker 1: So California Air Resources Board has its own requirements, So 393 00:21:45,880 --> 00:21:49,480 Speaker 1: out in California it's car Bob CARBOB. I assume there's 394 00:21:49,480 --> 00:21:53,400 Speaker 1: some lower emissions, cleaner burning that What regulates the Bob's 395 00:21:53,720 --> 00:21:56,840 Speaker 1: is the r VP, the read vapor pressure, which measures 396 00:21:56,920 --> 00:22:01,560 Speaker 1: volatility of fuel, how easy that fuel may or I 397 00:22:01,560 --> 00:22:05,960 Speaker 1: should say, the pressure of of emissions from burning a 398 00:22:06,000 --> 00:22:08,920 Speaker 1: gallon of fuel. So summer gasoline has lower r VP. 399 00:22:09,240 --> 00:22:12,200 Speaker 1: That means the fuel doesn't give off as much emissions 400 00:22:12,280 --> 00:22:16,119 Speaker 1: when it's burned, so it's less volatile. And because temperatures 401 00:22:16,119 --> 00:22:18,480 Speaker 1: can interact with that, you know in the in the 402 00:22:18,480 --> 00:22:21,719 Speaker 1: summer months you see ozone action days, right, because the 403 00:22:21,760 --> 00:22:25,280 Speaker 1: airborne temperature, the ambient temperature interacts with those emissions to 404 00:22:25,320 --> 00:22:28,440 Speaker 1: create more ozone. And so lower our VP is important 405 00:22:28,480 --> 00:22:30,840 Speaker 1: to clean the air up. And depending on where you are. 406 00:22:31,200 --> 00:22:35,400 Speaker 1: California has the most stringent requirements for r VP five 407 00:22:35,440 --> 00:22:38,280 Speaker 1: point nine nine, whereas some of the bigger cities use 408 00:22:38,400 --> 00:22:43,439 Speaker 1: seven point oh p s I r VP, and some 409 00:22:43,520 --> 00:22:48,000 Speaker 1: of the conventional gasoline for summer use is nine point 410 00:22:48,160 --> 00:22:51,840 Speaker 1: zero pounds or P s I r VP. So the 411 00:22:51,960 --> 00:22:54,840 Speaker 1: cleaner the gasoline, the lower the r v P, and 412 00:22:54,840 --> 00:22:57,679 Speaker 1: then when we move into winter the standards go up 413 00:22:57,720 --> 00:23:00,480 Speaker 1: to thirteen point five and fifteen. It's kind of the 414 00:23:00,560 --> 00:23:04,119 Speaker 1: default r VP. So fift P s I in the winter, 415 00:23:04,680 --> 00:23:07,800 Speaker 1: nine p s I in the summer, and the lower 416 00:23:07,880 --> 00:23:10,240 Speaker 1: the r v P, the more you pay, because the 417 00:23:10,240 --> 00:23:14,080 Speaker 1: cleaner burns, the components are cleaner, less voluable, and cost layer. 418 00:23:15,040 --> 00:23:18,160 Speaker 1: So I'm looking right now again. I like this game 419 00:23:18,200 --> 00:23:20,879 Speaker 1: of you describing something in gasoline and me trying to 420 00:23:20,880 --> 00:23:22,880 Speaker 1: find a ticker for it and see if this makes sense. 421 00:23:23,000 --> 00:23:25,960 Speaker 1: I'm looking at a shirt now. On the terminal it 422 00:23:26,040 --> 00:23:33,080 Speaker 1: says l A five point five October carbob prompt different index. 423 00:23:33,160 --> 00:23:35,680 Speaker 1: I think it's prompt, and right now it's nine cents, 424 00:23:35,760 --> 00:23:38,480 Speaker 1: So does that mean that if that sounds right, does 425 00:23:38,520 --> 00:23:41,679 Speaker 1: that mean that there's a nineteen cent premium for the 426 00:23:41,720 --> 00:23:45,119 Speaker 1: California blend basically of gasoline right now. Yeah, that's that 427 00:23:45,240 --> 00:23:48,840 Speaker 1: you're you're looking at the base is difference, So nine 428 00:23:49,080 --> 00:23:52,280 Speaker 1: x right now is to nine if you're looking live, 429 00:23:52,880 --> 00:23:55,640 Speaker 1: and the basis difference for l A is nineteen cents, 430 00:23:55,680 --> 00:24:00,200 Speaker 1: so that would put the carbob price at three one 431 00:24:00,359 --> 00:24:03,480 Speaker 1: and that doesn't include tax, So that you're finding the 432 00:24:03,760 --> 00:24:08,040 Speaker 1: basis that's the differentiator between whether your region is paying 433 00:24:08,040 --> 00:24:11,400 Speaker 1: a premium or getting a discount to that New York 434 00:24:11,440 --> 00:24:13,960 Speaker 1: Mercantile contract. Like I said, the West Coast is generally 435 00:24:14,000 --> 00:24:17,080 Speaker 1: a very tight market, so it's rare to see a 436 00:24:17,119 --> 00:24:20,680 Speaker 1: discount in the summer months in the West Coast, whereas 437 00:24:21,320 --> 00:24:24,040 Speaker 1: it's rare to see the Gulf Coast, ever be at 438 00:24:24,040 --> 00:24:27,000 Speaker 1: a premium because there's so many refineries down there that 439 00:24:27,040 --> 00:24:30,080 Speaker 1: the market is generally well supplied. But if there's a 440 00:24:30,080 --> 00:24:33,879 Speaker 1: major hurricane shutting those Golf Coast refineries down, you can 441 00:24:34,040 --> 00:24:37,160 Speaker 1: see a premium for Golf Coast gasoline. And by the way, 442 00:24:37,200 --> 00:24:41,240 Speaker 1: all these various foundations, these basis points that encourages refineries 443 00:24:41,280 --> 00:24:43,520 Speaker 1: to send gasoline to these regions. Just going to ask 444 00:24:43,560 --> 00:24:48,040 Speaker 1: about that exact question, So to what degree can refineries 445 00:24:48,200 --> 00:24:51,639 Speaker 1: shift the distribution of gasoline depending on where there's a 446 00:24:51,640 --> 00:24:55,120 Speaker 1: premium in a different in a in a given region. Well, 447 00:24:55,160 --> 00:24:59,320 Speaker 1: they can do that and discriminately where pipelines exist. Now, 448 00:24:59,440 --> 00:25:01,760 Speaker 1: the West Coast is essentially cut off from the rest 449 00:25:01,800 --> 00:25:04,760 Speaker 1: of the country. Pipelines flow east to Las Vegas and 450 00:25:04,840 --> 00:25:07,800 Speaker 1: west and the Phoenix, so there's a little bit of 451 00:25:07,800 --> 00:25:10,040 Speaker 1: the disconnect. We always call the West Coast of Petrol 452 00:25:10,080 --> 00:25:13,399 Speaker 1: Island because what's produced there stays there, and you can't 453 00:25:13,440 --> 00:25:17,479 Speaker 1: easily bring material into the West Coast. It's probably faster 454 00:25:17,560 --> 00:25:21,080 Speaker 1: for material to come from Japan or Singapore than it 455 00:25:21,200 --> 00:25:23,680 Speaker 1: is from the Gulf Coast going down to the Panama 456 00:25:23,720 --> 00:25:26,479 Speaker 1: Canal then going up the east uh, you know, up 457 00:25:26,480 --> 00:25:30,119 Speaker 1: the California coast. So well, I mean the time it 458 00:25:30,160 --> 00:25:31,879 Speaker 1: takes to load a ship in the Gulf Coast go 459 00:25:31,960 --> 00:25:34,600 Speaker 1: down through the Panama Canal, and keep in mind the 460 00:25:34,640 --> 00:25:37,760 Speaker 1: expense of sailing through the Panama Canal because it's you know, 461 00:25:37,800 --> 00:25:41,600 Speaker 1: it's expensive toll uh, and that may disadvantage your costs. 462 00:25:41,640 --> 00:25:44,240 Speaker 1: But otherwise much of the rest of the country is 463 00:25:44,280 --> 00:25:47,920 Speaker 1: well connected. Um, gasoline from the Gulf Coast can run 464 00:25:48,000 --> 00:25:50,240 Speaker 1: up the Colonial pipeline to the east coast and it 465 00:25:50,320 --> 00:25:54,160 Speaker 1: ends in Linda, New Jersey. So right now the East 466 00:25:54,200 --> 00:25:57,280 Speaker 1: coast has been extremely tight. An example, the New York 467 00:25:57,280 --> 00:26:01,360 Speaker 1: Harbor market is trading at a fourteen cent premium to nomax, 468 00:26:01,440 --> 00:26:03,600 Speaker 1: whereas the Gulf Coast is training at a thirty four 469 00:26:03,680 --> 00:26:08,320 Speaker 1: cent discount. That set up arbitrage opens the door for 470 00:26:08,320 --> 00:26:10,400 Speaker 1: for refineries in the Gulf Coast to send as much 471 00:26:10,400 --> 00:26:13,240 Speaker 1: material into New York as they can because they get 472 00:26:13,280 --> 00:26:16,520 Speaker 1: more money for it. But the space on the Colonial 473 00:26:16,560 --> 00:26:21,560 Speaker 1: pipeline is limited to the capacity, and right now it 474 00:26:21,600 --> 00:26:25,000 Speaker 1: would not be surprising, given that pretty wide difference, that 475 00:26:25,119 --> 00:26:27,960 Speaker 1: that pipeline is fully allocated, meaning it's out of the room. 476 00:26:28,320 --> 00:26:30,320 Speaker 1: The Colonial pipeline that was the one that got hacked 477 00:26:30,440 --> 00:26:34,320 Speaker 1: last year, right was what happened that? How did the 478 00:26:34,400 --> 00:26:39,320 Speaker 1: distribution of gas move as a function of that pipeline 479 00:26:39,359 --> 00:26:42,240 Speaker 1: having been shut down for a few days, Well, it 480 00:26:42,280 --> 00:26:44,280 Speaker 1: didn't really move, and that was the problem. Now there's 481 00:26:44,359 --> 00:26:47,440 Speaker 1: intermediate storage containers right at the big terminals. You see 482 00:26:47,440 --> 00:26:49,879 Speaker 1: those white tanks above the ground that can hold hundreds 483 00:26:49,920 --> 00:26:52,639 Speaker 1: of thousands, if not millions, of gallons of fuel. I 484 00:26:52,680 --> 00:26:54,560 Speaker 1: think most of the problems from the Colonial was not 485 00:26:54,720 --> 00:26:58,160 Speaker 1: actually the disruption and the flow of fuel, but how 486 00:26:58,359 --> 00:27:03,040 Speaker 1: motorists responded in a panic weigh to exacerbate the the 487 00:27:03,520 --> 00:27:05,760 Speaker 1: you know, the disruption of fuel supplied. People went out there. 488 00:27:05,800 --> 00:27:08,680 Speaker 1: I mean we saw the photos people with plastic shopping 489 00:27:08,680 --> 00:27:12,080 Speaker 1: bags filling up a plastic bag with gasoline, and so 490 00:27:12,440 --> 00:27:16,600 Speaker 1: motorists overwhelmed. Even under normal times when there's not issues, 491 00:27:16,640 --> 00:27:19,360 Speaker 1: they overwhelmed the system. I'm gonna throw out a percentage 492 00:27:19,440 --> 00:27:22,080 Speaker 1: I think of the outages that people experience because the 493 00:27:22,119 --> 00:27:27,360 Speaker 1: colonial of those outages were probably induced by how motorists responded, 494 00:27:27,440 --> 00:27:29,720 Speaker 1: And five percent of the outages were probably because the 495 00:27:29,720 --> 00:27:32,639 Speaker 1: stoppage of the pipeline. So it becomes down to human 496 00:27:32,720 --> 00:27:37,280 Speaker 1: behavior which exacerbated the situation. But we probably would have 497 00:27:37,359 --> 00:27:41,080 Speaker 1: made it through there with limited disruptions. But you know, 498 00:27:41,160 --> 00:27:43,320 Speaker 1: once once the beast was out there, in terms of 499 00:27:43,359 --> 00:27:45,520 Speaker 1: once people thought that there was gonna be disruption, everyone 500 00:27:45,600 --> 00:28:03,840 Speaker 1: ran for the All right, we just have a couple 501 00:28:03,920 --> 00:28:06,399 Speaker 1: more minutes left and want to wrap up. But you know, 502 00:28:07,040 --> 00:28:11,280 Speaker 1: refining capacity has been a really big mac road topic. 503 00:28:11,359 --> 00:28:14,000 Speaker 1: How much of a spread this sort of diminishment of 504 00:28:14,080 --> 00:28:17,040 Speaker 1: refining capacity has caused, you know, on top of the 505 00:28:17,080 --> 00:28:19,320 Speaker 1: price of crude oil, then it has to be refined 506 00:28:19,320 --> 00:28:22,959 Speaker 1: in to gasoline. Lots of talking about early shutdown of 507 00:28:23,480 --> 00:28:28,080 Speaker 1: refiner refineries, especially during when there was this collapse in 508 00:28:28,200 --> 00:28:31,440 Speaker 1: gasoline demand. How much do you think that's appreciated And 509 00:28:31,680 --> 00:28:35,080 Speaker 1: in your view, how much has the constraint of refining 510 00:28:35,119 --> 00:28:39,200 Speaker 1: capacity contributed to Well, really like the huge upward move 511 00:28:39,280 --> 00:28:43,920 Speaker 1: that we saw beginning uh that sort of culminated in June, Well, 512 00:28:43,960 --> 00:28:46,360 Speaker 1: I'd say a lot of it was due to, maybe 513 00:28:46,440 --> 00:28:50,680 Speaker 1: not necessarily, you know, the lack of refining capacity. Humans 514 00:28:50,720 --> 00:28:52,920 Speaker 1: trade right, all of the trades. You see, the way 515 00:28:52,960 --> 00:28:55,600 Speaker 1: the markets moving is because humans are behind it, trading 516 00:28:56,040 --> 00:29:00,120 Speaker 1: based on the tangible value. And the problem is is 517 00:29:00,160 --> 00:29:03,160 Speaker 1: when you start to run out of capacity, it freaks 518 00:29:03,200 --> 00:29:07,600 Speaker 1: the market out because obviously, if if supply or demand 519 00:29:07,600 --> 00:29:10,240 Speaker 1: exceeds supply, you know, prices are going to be on 520 00:29:10,320 --> 00:29:13,120 Speaker 1: a runaway and and and so the market tends to 521 00:29:13,160 --> 00:29:17,080 Speaker 1: be less measured in its response. When you start to 522 00:29:17,120 --> 00:29:21,560 Speaker 1: see you know this this this territory where there's just 523 00:29:21,600 --> 00:29:23,680 Speaker 1: an inability to keep up with the man, the market 524 00:29:23,680 --> 00:29:26,520 Speaker 1: panics and prices start to escalate out of control because 525 00:29:27,240 --> 00:29:29,600 Speaker 1: you know, it's fear based. So people get out of 526 00:29:29,600 --> 00:29:32,960 Speaker 1: control and the market goes up, up, up, up, and 527 00:29:32,960 --> 00:29:36,080 Speaker 1: and so having said that, it's really important that we 528 00:29:36,120 --> 00:29:39,520 Speaker 1: have spare capacity for both oil producers and refining. And 529 00:29:39,560 --> 00:29:41,760 Speaker 1: by the way, that hundred and fifty dollar barrel price 530 00:29:41,840 --> 00:29:43,840 Speaker 1: in two thousand eight, part of the reason why that 531 00:29:43,880 --> 00:29:46,640 Speaker 1: happened is because we ran out of spare capacity. So 532 00:29:46,680 --> 00:29:49,720 Speaker 1: the market just went out of control. That overheated, which 533 00:29:49,720 --> 00:29:52,920 Speaker 1: inherently caused Americans and the global economy to stop using 534 00:29:52,920 --> 00:29:56,480 Speaker 1: as much. And then we finally got our spare capacity back. 535 00:29:56,560 --> 00:29:59,959 Speaker 1: But this has been a story, and again it's happening 536 00:30:00,000 --> 00:30:02,680 Speaker 1: now at the refinery level because of COVID and because 537 00:30:03,040 --> 00:30:05,240 Speaker 1: the nation has been moving away from e v s. 538 00:30:05,280 --> 00:30:07,280 Speaker 1: But I think that's a big reason why prices did 539 00:30:07,320 --> 00:30:10,200 Speaker 1: get so out of control, is because of the possibility 540 00:30:10,240 --> 00:30:12,720 Speaker 1: that that supply was not going to keep up with 541 00:30:12,760 --> 00:30:15,480 Speaker 1: the man. But we're going to need more refinery capacity 542 00:30:15,520 --> 00:30:17,240 Speaker 1: to good news is it's coming online here in the 543 00:30:17,280 --> 00:30:20,360 Speaker 1: next couple of years. Oh that's good. Alright. Final question, 544 00:30:20,520 --> 00:30:24,680 Speaker 1: what is going on with demand levels right now? Because 545 00:30:24,720 --> 00:30:27,080 Speaker 1: a lot of people are questioning this. E I a 546 00:30:27,280 --> 00:30:32,080 Speaker 1: data which shows that somehow demand is below which makes 547 00:30:32,160 --> 00:30:34,360 Speaker 1: no sense because at that point they're still tons of 548 00:30:34,360 --> 00:30:38,760 Speaker 1: people not going anywhere. What's going on with demand and 549 00:30:38,840 --> 00:30:41,960 Speaker 1: what's going on with that data we're getting from the EIA. Well, 550 00:30:42,040 --> 00:30:45,560 Speaker 1: and first of all, it's important to understand the methodology. Right, 551 00:30:45,760 --> 00:30:47,280 Speaker 1: you don't just look at the number and say, oh 552 00:30:47,400 --> 00:30:50,600 Speaker 1: this is You have to dig into what the number represents. 553 00:30:50,640 --> 00:30:53,120 Speaker 1: And for the e I A, it's the best number 554 00:30:53,160 --> 00:30:56,400 Speaker 1: that they can get. They measure, you know, the pipelines, 555 00:30:56,480 --> 00:31:00,120 Speaker 1: the tanks that the moving of products, so there are 556 00:31:00,200 --> 00:31:05,440 Speaker 1: metric is called implied demand or products supplied. Right, You're 557 00:31:05,440 --> 00:31:08,280 Speaker 1: you're basically saying the markets consuming this much because we 558 00:31:08,360 --> 00:31:11,720 Speaker 1: see this much moving through these tanks. But it's not 559 00:31:12,440 --> 00:31:16,120 Speaker 1: the perfect gauge because stations have intermediate storage facilities to 560 00:31:16,320 --> 00:31:18,920 Speaker 1: that are not measured by the e I A. So 561 00:31:19,040 --> 00:31:22,040 Speaker 1: stations could be sitting on more or less gasoline depending 562 00:31:22,040 --> 00:31:25,400 Speaker 1: on the situation, right, because there's intermediate storage devices that 563 00:31:25,440 --> 00:31:28,160 Speaker 1: the EIA doesn't measure. So yes, but he actually looks 564 00:31:28,200 --> 00:31:31,880 Speaker 1: at demand at the retail dispenser, and so our data 565 00:31:31,920 --> 00:31:33,800 Speaker 1: doesn't line up with the I A because E A 566 00:31:34,200 --> 00:31:37,360 Speaker 1: could be flawed in that maybe when prices are plummeting, 567 00:31:37,400 --> 00:31:39,560 Speaker 1: stations are gonna say we're not going to buy ten 568 00:31:39,600 --> 00:31:42,840 Speaker 1: thousand gallons today, We're gonna buy two thousand gallons today, 569 00:31:43,120 --> 00:31:45,360 Speaker 1: and then in three days when prices are lower, and 570 00:31:45,400 --> 00:31:48,880 Speaker 1: the eas data then would say there's less demand because 571 00:31:48,880 --> 00:31:52,120 Speaker 1: they don't see stations right. Stations are slowing down their 572 00:31:52,160 --> 00:31:55,400 Speaker 1: purchases to get ahead of pricing differences, whereas our data 573 00:31:55,600 --> 00:31:59,200 Speaker 1: continues to look at fuel dispensed at the retail station. 574 00:31:59,320 --> 00:32:03,000 Speaker 1: So it's important to understand the guys methodology. There is 575 00:32:03,040 --> 00:32:06,480 Speaker 1: inherent flaws. They just look at it differently. Your data 576 00:32:06,560 --> 00:32:11,200 Speaker 1: does not. Your data shows robust demand. It shows healthy demand, 577 00:32:11,280 --> 00:32:13,560 Speaker 1: certainly not at record levels, and now we're starting to 578 00:32:13,600 --> 00:32:17,120 Speaker 1: see demands seasonally decline. But that's where we are. It's 579 00:32:17,160 --> 00:32:19,000 Speaker 1: it's not as weak as what the EI has been 580 00:32:19,320 --> 00:32:23,720 Speaker 1: suggesting recently. Patrick Dehn, I've been wanting to get thirty 581 00:32:23,760 --> 00:32:26,040 Speaker 1: minutes of your time for a long time to learn 582 00:32:26,800 --> 00:32:29,960 Speaker 1: that you know all these rudimentary, the dumb questions about 583 00:32:30,000 --> 00:32:32,360 Speaker 1: the price of gasoline, like why is it different in 584 00:32:32,360 --> 00:32:34,880 Speaker 1: one place? There's no depth questions, and you know, this 585 00:32:34,960 --> 00:32:37,360 Speaker 1: is my favorite thing to do. It's just there's there's 586 00:32:37,360 --> 00:32:39,080 Speaker 1: not a whole lot of solid answers out there, and 587 00:32:39,080 --> 00:32:41,280 Speaker 1: there's a lot of curiosity, and that's you know, that's 588 00:32:41,280 --> 00:32:43,960 Speaker 1: how I got into this too, So well, really appreciate 589 00:32:43,960 --> 00:33:01,120 Speaker 1: you coming out online. My pleasure, Thanks for having it. Well, 590 00:33:01,120 --> 00:33:04,120 Speaker 1: that was really fun talking to Patrick. I wish I 591 00:33:04,160 --> 00:33:06,920 Speaker 1: could banter with Tracy for a few minutes, but I 592 00:33:06,960 --> 00:33:09,760 Speaker 1: did find that really helpful because A had always been 593 00:33:09,800 --> 00:33:12,240 Speaker 1: really curious about things like, well, how much margin is 594 00:33:12,240 --> 00:33:15,520 Speaker 1: there for a gas station, What are the advantages for 595 00:33:15,600 --> 00:33:19,920 Speaker 1: a gas station that sells other stuff besides gasoline? What 596 00:33:20,040 --> 00:33:23,560 Speaker 1: is the pricing power of the large chains of gasoline stations? 597 00:33:23,880 --> 00:33:28,000 Speaker 1: Why is there such regional variation? So all of these questions. 598 00:33:28,080 --> 00:33:30,560 Speaker 1: Patrick answered very well. Also that e I a thing 599 00:33:30,640 --> 00:33:32,920 Speaker 1: that's been getting a lot of attention because people are 600 00:33:32,960 --> 00:33:35,680 Speaker 1: looking at this falling price of gasoline like, oh yeah, 601 00:33:35,680 --> 00:33:38,120 Speaker 1: it's because the economy is falling off a cliff. People 602 00:33:38,120 --> 00:33:40,680 Speaker 1: are driving less than they were in I don't think 603 00:33:40,680 --> 00:33:44,520 Speaker 1: that's correct. Intuitively, it doesn't seem right, and as Patrick noted, 604 00:33:44,800 --> 00:33:48,200 Speaker 1: the gas Buddy data does not show that kind of 605 00:33:48,240 --> 00:33:50,680 Speaker 1: collapse at all. Although I guess we are past the 606 00:33:50,720 --> 00:33:54,200 Speaker 1: peak of the summer driving season. So really fun talking 607 00:33:54,200 --> 00:33:56,800 Speaker 1: to Patrick and I guess we will leave it there. 608 00:33:56,960 --> 00:34:00,760 Speaker 1: And this has been another episode of the odd Lot podcast. 609 00:34:01,120 --> 00:34:03,160 Speaker 1: I'm Joe, wi Isn't all. You could follow me on 610 00:34:03,240 --> 00:34:06,800 Speaker 1: Twitter at the Stalwart, Follow my co host Tracy Alloway 611 00:34:07,040 --> 00:34:11,279 Speaker 1: at Tracy Alloway, Follow Patrick de Han at gas Buddy Guy. 612 00:34:11,600 --> 00:34:15,719 Speaker 1: Follow our producer Carmen Rodriguez at Kerman Armand, and check 613 00:34:15,760 --> 00:34:18,760 Speaker 1: out all of our podcasts in Bloomberg under the handle 614 00:34:19,160 --> 00:34:21,120 Speaker 1: at podcasts. Thanks for listening