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Nerd Cheat Sheet: Gasoline Pool Working Residual Model
Supply and demand, at its simplest, can be harsh. It is about leverage. At its extreme it can resemble a game of chicken: who blinks first, or who has the better poker face?
Games often have a winner and a loser. One walks away with what he or she wanted; the other sacrifices what they hope is not too much. Seen primitively, the transaction exists in isolation. The game ends and ceases to have relevance.
A game like Monopoly is designed to end after a couple of hours of amusement, entertainment and possibly a healthy dose of malice.
Life is different. We remain in the game.
The important feature of supply and demand is therefore that transactions do not take place in a vacuum.
A tank of gasoline or diesel may carry a motorist several hundred kilometres before it needs filling again. If I am forced to fill up on the Autobahn one day, experience may encourage me to plan the next journey differently or use the navigation system to find a cheaper filling station.
Saving money costs some effort — particularly when trying to avoid a brown-trouser moment while watching the yellow fuel-warning light turn an economic decision into a practical consequence.
When I fill the tank, I make a conscious decision about where to go, and pump price plays a significant role. I buy perhaps 50 litres at a time. The filling-station operator, on the other hand, needs enough customers to return repeatedly for the business model to remain viable.
A filling station on the Autobahn may operate under quite different conditions from one beside a supermarket or in a residential area, but all need a sustainable commercial return.
The simple “wholesale-to-retail” model does not describe every filling-station arrangement, but it is sufficient for illustration.
A successfully operated filling station must recover staff costs, the cost of procuring fuel, inventory exposure, other operating costs and an adequate commercial return.
Local competition constrains the margin available between the price at which fuel is obtained and the price displayed at the pump. Some outlets may also treat fuel as only one component of a wider business and may accept a very small fuel margin to attract customers to other activities.
Pump prices can therefore change frequently as stations respond to supply cost, local competitors, inventory position and customer behaviour.
Changing Hands
When the motorist pays the pump price, the gasoline changes ownership.
Something similar happened earlier when the tanker supplied the filling station. At each commercial transfer, product and money change hands.
This creates inventory exposure.
The station may purchase fuel at one price and subsequently find that the price at which it can competitively sell that inventory has changed. Conversely, a rising market may increase the replacement cost of fuel still to be purchased.
Inventory exposure is unavoidable; speculation is optional.
Like other retailers, filling-station operators therefore have to manage stock, replenishment and changing market prices. Motorists themselves are part of this process: changes in where, when and how much we buy alter demand at individual stations.
A supermarket may manage many prices through promotions lasting days or weeks. A filling station operates in an environment in which the visible price of its principal product can change several times during a single day.
Upscaling
The same idea becomes more complicated when scaled from one filling station to the complete oil supply chain.
A station may hold several grades of gasoline and diesel in separate tanks. Its overall business may also include food, drinks, a café, car washing or other services. Fuel does not necessarily have to be the most profitable individual activity for the complete business to be viable.
The oil supply chain works on a much larger scale, but the underlying issue remains similar.
Crude oil, intermediate refinery streams and finished products can all change ownership before reaching the final consumer. The larger system therefore contains many inventory positions, contractual commitments and decisions about future supply.
Commodity markets add another dimension. Futures, forward contracts and other commercial arrangements can be used to hedge risk, plan future purchases or sales and establish reference prices. They can also allow market participants to take positions on expected future values.
Their existence changes the way information and expectations propagate through the physical market.
Complexity
A shop holds stock so that a customer arriving tomorrow does not leave empty-handed. At some point the retailer must order replacement stock.
The oil business extends this principle over much longer distances, larger inventories and longer time periods.
Crude that has not yet been produced may already be subject to a sales contract. Future production can be priced directly or linked to market benchmarks. Crude oil, intermediates and finished products may change ownership while travelling towards their eventual consumer. Transport and infrastructure capacity may itself be reserved contractually in advance.
The important point is not that these arrangements are unusual.
The problem is value.
Some things in the oil business have an economic value before the corresponding physical product has even been produced or delivered.
Contracts allocate obligations, risks and consequences before a disturbance occurs. A party may therefore remain obliged to buy or sell material at conditions established before the market changed.
When a disturbance occurs, the value of time, inventory, replacement supply and available production or transport capacity can all change.
Companies attempt to mitigate these consequences through logistics, purchasing, production planning, inventory management, hedging and other commercial decisions.
Mitigation can reduce a physical consequence without eliminating the economic consequence.
As those decisions are made, money can change both magnitude and destination.
A Fair Share of Disruption
The Covid-19 disruption provides an extreme example.
Restrictions on travel sharply reduced road and aviation demand. Oil production and refinery operation were adjusted in response, while fuel prices fell substantially.
As restrictions were relaxed, demand recovered into a supply system that had itself already been adjusted.
The market therefore entered the next disturbance from a starting condition that had already changed.
July 2021 to July 2022 — Background Outside the Model
During the recovery from the Covid-19 disruption, Russia invaded Ukraine in February 2022. The EU subsequently introduced sanctions and restrictions affecting Russian crude oil and petroleum-product imports. In June 2022, the EU agreed to phase in prohibitions covering seaborne Russian crude and certain petroleum products, subject to specified exceptions and transition periods.
The July data used by the model show the Brent crude price increasing sharply between 2021 and 2022.
Excluding the July 2022 peak of approximately $111.93/bbl, the July observations between 2021 and 2025 place Brent broadly in the range of approximately $70–85/bbl.
This does not by itself prove a particular supply-demand balance, but it provides an indication of the scale of the 2022 disturbance relative to the surrounding observations.
Naphtha shows a similar but more volatile pattern. Excluding the July 2022 value of approximately $762.9/t, the July observations range from approximately $376.8/t to $550.8/t between 2021 and 2025.
German E10 pump price increased from approximately €1.547/L in July 2021 to €1.795/L in July 2022. Following the 2022 peak, the July observations through 2025 varied within a much narrower range.
Two major external impulses therefore affected the oil system over this period: recovery from the severe Covid-related demand disruption, and the subsequent reorganisation of supply associated with the war in Ukraine and restrictions on Russian energy trade.
July 2025 to July 2026 — A Different Disturbance
The first joint U.S.–Israeli strikes on Iran occurred on 28 February 2026. By 4 March, ABC Australia was already reporting sharp petrol-price increases and queues at filling stations. The Australasian Convenience and Petroleum Marketers Association pointed out that much of Australia’s physical fuel supply arrived via Singapore and that the physical supply lag could be up to two weeks.
That distinction is important.
The market price can react to information before the molecules themselves have moved.
Expectations about future supply, replacement cost and risk can change almost immediately, while the product currently sitting in tanks may have been produced and purchased under earlier conditions.
Who’s Buying Brent?
Between July 2025 and July 2026, Brent increased from approximately $71.04/bbl to $83.76/bbl.
By July, the initial crude-price shock associated with the conflict had substantially dissipated relative to the much higher levels reached earlier in 2026.
The naphtha market showed a different pattern. The July 2026 value of approximately $738/t approached the July 2022 peak of approximately $763/t.
Over the same period, German E10 increased from approximately €1.674/L to €2.099/L.
The July observations therefore suggest that by this point the Brent signal had moved substantially back towards its earlier range, while naphtha and gasoline-pool values had not returned to their previous structure.
Gulf producers have also developed substantial refining and petrochemical capacity. The region therefore supplies not only crude oil but refinery products, gasoline-pool components and petrochemical feedstocks.
Different suppliers have logistical advantages in serving different geographic markets. These patterns do not form completely independent systems: when one supply route or production system is disrupted, unmet demand can seek replacement material elsewhere.
What is bought, sold and redirected need not result from a single coordinated strategy. Individual participants respond to inventory, commitments, production capacity, transport availability, expected prices and delivery times.
Managing such a disturbance requires work, additional contingency and the acceptance or transfer of risk.
That costs money.
Repeated disruption of traffic through the Strait of Hormuz therefore introduced a new disturbance into a system that was still carrying the consequences of previous disruptions.
How strongly it is experienced depends on geography and, importantly, on the state of the system before the disturbance begins.
Adaptation begins as soon as new information changes expectations about future supply, replacement value and risk.
The physical product may take days or weeks to arrive.
The change in value can begin immediately.
Where did the Windfall Fall?
📖 Supporting Sections
- Who’s Cooking the Books with Gasoline? 18.09.2026
- Picky and Choosy 20.09.2026
- The Grass is Greener 21.09.2026
- Supply and Demand 23.09.2026
- When the Wind Blows 23.09.2026
- Good Intentions and the Shifting of Influence 23.09.2026
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Nerd Cheat Sheet: Gasoline Pool Working Residual Model
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