Q and A

Q.Gasoline signs usually have different prices for different grades of gasoline. How do the grades differ?

A.The three main grades of gasoline—regular, midgrade, and premium—are based on octane levels. Gas companies may use various names such as unleaded, super, or premium for the different grades. Higher octane helps engines resist knocking, which occurs (and is heard) when an engine isn’t processing gasoline smoothly. By law, bright yellow stickers on gas pumps identify octane levels, and higher octane levels have higher prices. Each vehicle has a recommended octane level (noted in the vehicle’s user manual). Most light-weight vehicles need only the lowest octane level and do not perform any better with higher grades. Sports cars and luxury vehicles are more likely to require higher octane grades. Source: http://www.consumer.ftc.gov/articles/0210-paying-premium-high-octane-gasoline; http://www.eia.gov/EnergyExplained/?page=gasoline_home.

Q.Why do gasoline prices end with 9/10?

A.The fraction 9/10 stands for nine-tenths of 1 cent. So, for example, $3.49 9/10 is actually $3.499. Years ago, when prices were relatively lower, 1 cent could be a significant price increase. During the Great Depression, gasoline prices fell below 10 cents a gallon at times and fractional pricing allowed smaller incremental price changes. By the mid-1930s the practice was common. The pricing to 0.9 cents remained because marketing experts learned that consumer perception was important—a price of $1.999 sounds less expensive than $2.00.

Source: http://www.nacsonline.com/YourBusiness/FuelsReports/GasPrices_2013/Pages/Why-Is-Gas-Priced-Using-Fractions.aspx.

Q.When was the Organization of the Petroleum Exporting Countries (OPEC) formed, which countries are members, and what is its purpose?

A.OPEC was organized in 1960 and the 12 member countries are Iran, Iraq, Kuwait, Saudi Arabia, Qatar, United Arab Emirates, Algeria, Angola, Ecuador, Libya, Nigeria, and Venezuela. Although the individual member countries make production decisions, OPEC negotiates with oil companies to manage oil production and prices by setting production targets for each country. Source: http://www.eia.gov/energyexplained/index.cfm?page=oil_imports; http://www.eia.gov/energy_in_brief/article/world_oil_market.cfm.

Q.When offshore oil and gas production occurs, how far from the coast do oil companies have the right to drill? What are the boundaries?

A.For most coastal states, drilling rights extend about 3.5 miles from shore. However, for the Texas and Florida coasts along the Gulf of Mexico, the boundaries extend farther—to about 10.35 miles from shore. Source: http://www.eia.gov/tools/faqs/faq.cfm?id=42&t=6.

Q.Gasoline signs often include the price of diesel fuel, which usually costs more than gasoline. Why is diesel fuel more expensive? Has it always been that way?

A.Before September 2004, diesel fuel cost less than gasoline. Since that time, however, diesel fuel prices have remained higher for a number of reasons:

  • A change in diesel fuel’s formula to reduce pollution increased production and distribution costs for diesel.
  • Global demand for diesel fuel has increased.
  • Source: http://www.eia.gov/tools/faqs/faq.cfm?id=9&t=9.

    Q.How many gallons of gasoline and diesel fuel come from one barrel of crude oil?

    A.In 2013 in U.S. refineries, one barrel of crude (42 gallons) produced on average about 12 gallons of diesel fuel and 19 gallons of gasoline. Source: http://www.eia.gov/tools/faqs/faq.cfm?id=327&t=9.

    Q.What are proved oil reserves and the total quantity of such reserves?

    A.Proved oil reserves are the amount of oil in a given area known to be recoverable with reasonable certainty, with about 1.6 trillion barrels worldwide. Source: http://www.eia.gov/energy_in_brief/article/world_oil_market.cfm.

    Q.In the world market for crude oil, are all oil companies owned and operated similarly?

    A. No. There are three types of oil companies, with different mixes of operation and ownership:

  • International oil companies (IOCs) are entirely investor owned and accountable to their shareholders. Decisions are made in the interest of the company and its shareholders—not the government. Large U.S.-based IOCs include ExxonMobil, Chevron, BP, Royal Dutch Shell, and ConocoPhillips.
  • National oil companies (NOCs) are government-owned companies that operate as an extension of the government. They support their governments financially and strategically and control most of the world’s proved oil reserves (78 percent in 2012) and oil production (58 percent in 2012). Leading NOCs by share of world production include Saudi Aramco, the National Iranian Oil Company, and the China National Petroleum Corporation. Each OPEC member country has at least one NOC, although some, such as Iraq, have several. The United States does not have any NOCs.
  • Corporate NOCs do not operate as an extension of the government. Although they may support their government’s goals, they are profit oriented and thus primarily commercially driven. Such oil companies include Petrobras (Brazil) and Statoil (Norway). Source: http://www.eia.gov/energy_in_brief/article/world_oil_market.cfm.
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