Valero Energy Corporation (VLO), Chevron Corporation (CVX): Will Gas Prices Hit $4 a Gallon?

Furthermore, this company’s revenue also rose by 15.4% during the first quarter of 2013 (year-over-year). But the company’s growth in sales was mainly driven by its acquisition of the Galveston Bay refinery at the beginning of February.

If these leading refineries and other refinery companies were to raise their profit margins, this could pressure gasoline prices higher. Nonetheless, since refinery costs account for only 13% of the total price of gasoline, the effect of rising profit margins or costs of refinery companies will be very marginal. For every 1% gain in the cost of refineries, the price of gasoline, assuming all things equal, will rise by 0.13%.

Is the demand for gasoline falling?

According to the recent retail sales report for May (opens pdf), gasoline station sales declined by 0.9% in the first five months of 2013 (year-on-year). Moreover, in May, gasoline station sales dwindled by 0.2% (month-over-month). Was the decline in sales related to the drop in gasoline prices?

The average price of gasoline declined by 2.5% during the first five months of 2013 compared to last year. Furthermore, the average weekly consumption of gasoline slipped by 0.2% during the first five months of 2013. Therefore, most of the drop in sales was related to declines in gas prices.

Nonetheless, the demand could pick up if the U.S economy continues to grow at a faster pace. In the first quarter of 2013, U.S GDP grew by 2.5%, which is a faster pace than in the same quarter in 2012. The drop in demand for gasoline in the first quarter of 2013 also had an adverse effect on sales of companies such as Chevron Corporation (NYSE:CVX), which has gas stations throughout the U.S.

The third rail – taxes

I will just mention that taxes account for roughly 12% of the price of gasoline. Even though U.S policymakers are trying to find ways of cutting the budget deficit, I think it’s safe to say they will stay clear from hiking gas prices.

Take away

Based on the above, gasoline prices might resume their rally and perhaps even break the $4 mark if the demand for oil pick ups, OPEC changes its oil production quota, imports to the U.S dwindle, or refinery costs rise.

The article Will Gas Prices Hit $4 a Gallon? originally appeared on Fool.com and is written by Lior Cohen.

Lior Cohen has no position in any stocks mentioned. The Motley Fool recommends Chevron. Lior is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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