GASOLINE PRICES ANALYSIS

Gasoline Prices Analysis



Gasoline Prices Analysis

Introduction

The largest market segment for the Gasoline industry is non-bulk petroleum and petroleum product purchases. Therefore, the gasoline and petroleum industry is an important downstream industry for courier and delivery service companies.  The delivery service companies use large amounts of gasoline to operate, so it buys significant quantities of gasoline every year from industry players. This factor directly affects delivery service companies' revenue. This paper presents an analysis of gasoline price changes and how it this information can be used as a manager in making business decisions for a company offering delivery services.

Gasoline Prices Analysis

The US economy is almost entirely dependent on the supply of crude oil from foreign sources. The delivery services and logistics industry indirectly remains at the mercy of international prices, which are a cost of goods sold for logistics companies. Analysis of gasoline price in Part 1 shows that this driver is expected to increase during 2012, representing a potential threat for the industry (IBIS World, 2011a). The price at which gasoline is purchased plays a key role in determining costs. 

Production levels affect oil purchasing costs on a daily basis and affect profitability for logistics service companies. Therefore, the global production of gasoline has a direct impact on gasoline prices, which subsequently determine the price structuring of delivery service companies (IBIS World, 2011a). The price of gasoline correlates significantly with the prices of its two main substitutes, coal and natural gas (IBIS World, 2011c). The price of retail gasoline influences revenue, since consumers hold back on logistics services mode as prices rise.

High revenue volatility is a consistent trend in the delivery service industry since 2000 onwards. Volatile gasoline prices lead to fluctuations in industry revenue from year to year (Timmins, 2008). A credit boom fueled the expansion of the bubble and ultimately led to historically high gasoline prices in the three years prior to 2009, as shown in the graph 1 attached in appendix. Due to this factor, courier delivery services encountered heavy losses due to inability to maintain its prices in relation to gasoline prices.

However, analysis in Past 1 shows that slowing global growth and the recession in the United States resulted in lower prices and weak volumes. From 1990 to 2005, historic low gasoline oil prices represent slow growth in the volume of fuel handled (IBIS World, 2011b). High levels of emerging economic demand were responsible ...