Monday, January 11, 2016

(Oil+tax)-free Spanish gas prices 2014-15

We use the data gathered at our hysteresis analysis of Spanish gas prices for 2014 and 2015 to gain further insight on their dynamics. This is a simple breakdown of gas (or gasoil) price:
Price = oil cost + other costs + taxes + margin.
A barrel of crude oil is refined into several final products totalling approximately the same amount of volume, that is, it takes roughly one liter of crude oil to produce one liter of gas (or gasoil). The simplest allocation model is to use market Brent prices as the oil cost for fuel production (we will see more realistic models later). If we eliminate taxes and oil cost, what remains in the fuel price is other costs plus margin. We plot this number for 95 octane gas and gasoil compared with Brent oil price, all in c€/l, for the period 2014-2015:
(Oil+tax)-free fuel price, simple cost allocation model [c€/l]
Brent oil cost [c€/l]
When we factor out crude oil cost, the remaning parts of the price increase moderately (~25% for gasoline, ~15% for gas). In a scenario of oil price reduction, oil direct costs as a percentage of tax-free fuel prices have consequently dropped from 70% to 50%:
Oil direct cost / tax-free fuel price,simple cost allocation model
Value-based cost allocation
Crude oil is refined into several final products from high-quality fuel to asphalt, plastic etc. The EIA provides typical yield data for US refineries that we can use as a reasonable approximation to the Spanish case. The volume breakdown we are interested in is roughly:
  • Gas: 45%
  • Gasoil: 30%
  • Other products: 37%
(Note that the sum is greater than 100% because additional components are mixed in the process). Now, as these products have very different prices in the market, it is natural to allocate oil costs proportionally to end-user value:
pricetotal45% pricegasoline + 30% pricegasoil + 37% priceother ,
costgasoline = costoil × pricegasoline / pricetotal ,
costgas = costoil × pricegas / pricetotal
(prices without taxes). Since it is difficult to obtain accurate data on prices for the remaining products, we consider two conventional scenarios where these products are valued at 50% and 25% of the average fuel price, respectively:
  • A: priceother = 50% (pricegasoline + pricegasoil)/2
  • B: priceother = 25% (pricegasoline + pricegasoil)/2
The figure depicts resulting prices without oil costs or taxes (i.e. other costs plus margin):
(Oil+tax)-free fuel price, value-based cost allocation [c€/l]
Brent oil cost [c€/l]
Unlike with our previous, naïve allocation model, here we see, both in scenarios A and B, that margins for gasoline and gas match very precisely almost all the time: this can be seen as further indication that value-based cost allocation is indeed the model used by gas companies themselves. Visual inspection reveals two insights:
  • Short-term, margin fluctuations are countercyclical to oil price. This might be due to an effort from companies to stabilize prices.
  • In the two-year period studied, margins grow very much, around 30% for scenario A and 60% for scenario B. This trend has been somewhat corrected in the second half of 2015, though.
The percentual contribution of oil costs to fuel prices (which is by virtue of the cost allocation model exactly the same for gasoline and gas) drops in 2014-15 from 75% to 55% (scenario A) and from 85% to 60% (scenario B).
Oil direct cost / tax-free fuel price, value-based cost allocation

Gas price hysteresis, Spain 2015

We begin the new year redoing our hysteresis analysis for Spanish gas prices with data from 2015, obtained from the usual sources:
The figure shows the weekly evolution during 2015 of prices of Brent oil and average retail prices without taxes of 95 octane gas and gasoil in Spain, all in c€ per liter.
For gasoline, the corresponding scatter plot of Δ(gasoline price before taxes) against Δ(Brent price) is
with linear regressions for the entire graph and both semiplanes Δ(Brent price) ≥ 0 and ≤ 0, given by
overall → y = f(x) = b + mx = −0.1210 + 0.2554x,
ΔBrent ≥ 0 → y = f+(x) = b+ + m+x = 0.2866 − 0.0824x,
ΔBrent ≤ 0 → y = f(x) = b + mx = 0.3552 + 0.4040x.
Due to the outlier in the right lower corner (with date August 31), positive variations in oil price don't translate, in average, as positive increments in the price of gasoline. The most worrisome aspect is the fact that b+ and are b positive, which suggests an underlying trend to increase prices when oil is stable.
For gasoil we have
with regressions
overall → y = f(x) = b + mx = −0.0672 + 0.3538x,
ΔBrent ≥ 0 → y = f+(x) = b+ + m+x = −0.2457 + 0.2013x,
ΔBrent ≤ 0 → y = f(x) = b + mx = 0.2468 + 0.3956x.
Again, no "rocket and feather" effect here (in fact,  m+ is slightly smaller than m). Variations around ΔBrent = 0 are fairly symmetrical and, seemingly, fair.