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Nerd Cheat Sheet: Gasoline Pool Working Residual Model
A supplier does not necessarily have to manufacture every litre it supplies. Suitable product can also be purchased from another market participant.
The replacement value of a product therefore depends not only on the supplier’s own manufacturing cost, but also on the price and availability of alternative supply.
Tell Me the Price Please
Oil and refined-product markets do not operate like a single stock exchange.
Physical cargoes, bilateral contracts, forward markets and financial derivatives interact. Market benchmarks such as Brent therefore provide reference values that can influence transactions far beyond the relatively small volume of physical crude directly involved in establishing the benchmark.
The Brent price we commonly hear quoted emerges from several related markets:
- Physical crude cargoes are actually bought and sold.
- Forward and OTC contracts deal in future physical or financially settled positions.
- ICE Brent futures and other derivatives are traded on organised markets.
- Dated Brent, one of the major physical benchmarks, is an assessed market value derived from observable bids, offers and transactions involving qualifying physical crude cargoes.
- The ICE Brent Index reflects the North Sea cash and forward market and is used in settling expiring ICE Brent futures contracts.
Not every barrel priced against Brent was itself traded in the Brent benchmark market.
This provides an important frame for examining oil-market value: a relatively small set of observable transactions can influence the reference value applied to a much larger volume of business.
Receipts Have Business Value
Buying finished German E10 gasoline from a producer creates a transaction.
For the seller, the transaction becomes recorded revenue. For the buyer, it becomes an acquisition cost.
The producer must nevertheless recover the costs associated with producing and supplying its complete range of products. These may include:
- additional feedstocks;
- production and operating costs;
- logistics and trading costs and risks;
- applicable taxes, duties and other obligations;
- an economic return sufficient to sustain the business.
The price paid by the buyer therefore does more than compensate for the physical material transferred.
This introduces an important distinction:
- Legal incidence: who is legally required to calculate, collect or remit a tax or charge.
- Economic incidence: who ultimately bears the cost after prices, margins, wages, investment and other commercial decisions adjust.
Where Tax Is Collected and Who Pays It
German E10 provides examples of different taxation mechanisms operating at different points in the supply chain.
The legal CO₂ obligation arises upstream in the fuel supply chain. Its economic cost may subsequently be incorporated into successive selling prices before the fuel reaches the filling station.
By the time the motorist buys the fuel, some or all of that upstream cost may therefore already be embedded in the pump price.
VAT operates differently. It is applied to the final taxable sale price. The motorist pays a VAT-inclusive pump price, while the seller accounts for the VAT under the applicable tax system.
The point is not simply where a tax enters the chain, but where its economic burden eventually lands.
The Taxman Cometh
Corporate income taxes are generally assessed on taxable profit rather than on individual sales transactions.
At its simplest:
Profit represents value remaining after recognised costs over an accounting period.
For orientation, the economics of a refining and petrochemical business can be represented conceptually as:
Profit ≈ Σ product-pool Working Residuals − production costs − additional feedstocks − logistics/trading costs and risks
This is not a statutory calculation of taxable profit.
Individual refinery and petrochemical systems have different configurations, ownership structures, contractual arrangements and tax positions. The equation is therefore useful only as a conceptual bridge between the Working Residual used in this investigation and actual company profit.
It’s the Economy, It’s the Economy, It’s the Economy
Is it too much to assume that the purpose of private enterprise is to generate wealth sustainably?
To live for tomorrow, the business has to get through today — and to reach the future it has to survive tomorrow.
Large multinational oil companies compete for many different customers, ultimately including the individual motorist.
Unlike a purely national business, a multinational operates across several jurisdictions, each with its own tax systems, regulations, markets and commercial conditions.
A multinational business will normally seek to improve its after-tax return while continuing to operate within legal, contractual and commercial constraints.
Getting Back to the Problem: Value
The buying and selling of crude oil and its derivatives create a very large multivariable optimisation problem involving, among other things:
- system lags;
- import and export schedules;
- facility capacities;
- facility inventories;
- facility maintenance;
- feedstocks in transit;
- sales and purchase opportunities;
- sales and purchase commitments;
- marketing and customer obligations.
Large oil companies can generate substantial profits or losses through this system.
Managing it requires continual evaluation of current and future asset values, production and operating costs, contractual commitments, inventories and tax obligations.
Under relatively stable conditions, competition tends to constrain margins and reduce persistent arbitrage opportunities.
A major disruption, such as restrictions affecting shipping through the Strait of Hormuz, changes the problem.
Replacement costs change. Inventory positions acquire different values. Supply routes and production schedules may need to be reorganised. Existing contracts may become unusually favourable or unfavourable.
Uncertainty can therefore produce rapid decisions around replacement supply, anticipated wholesale prices, precautionary purchasing and inventory risk — even while the molecules currently sitting in a storage tank arrived under the old conditions.
Managing the disruption itself costs money.
At the same time, changes in expected future prices create opportunities for market participants to take positions that may produce gains or losses.
Money therefore changes both magnitude and destination.
Corporate Distribution
The modern international oil industry contains many large corporations operating across multiple jurisdictions.
Historically, the breakup of Standard Oil in the United States in 1911 created a number of separate companies, several of whose descendants later became major oil corporations. Other international oil companies developed independently.
Over time there has been further consolidation, restructuring and cooperation, but the companies remain separate commercial organisations competing across global markets.
Their operations may include extraction, refining, petrochemicals, trading, storage, distribution and retail spread across numerous countries.
Tax liability therefore does not arise simply because the parent corporation is large or multinational. Taxable income must be attributed to legal entities and jurisdictions under the applicable rules.
Where activities, assets, risks and transactions are located consequently matters.
A disruption such as restrictions on shipping through the Strait of Hormuz can alter money flows and create opportunities for additional profit somewhere within this global system.
Some of that additional profit might potentially satisfy a policy definition of windfall profit.
But locating it is another question.
The supply chain and its associated transactions are global. An increase in value observed in German gasoline does not by itself establish:
- which company retained the additional value;
- which part of that company’s business generated it;
- whether it survived additional costs as profit;
- or in which jurisdiction any resulting taxable profit arose.
Back to the Numbers
The analysis in Picky and Choosey showed the following change between July 2025 and July 2026:
| Parameter | July 2025 | July 2026 | Change |
| E10 Working Residual | €398.9/t | €754.9/t | +€356.0/t |
| Naphtha Working Residual | €12.4/t | €92.6/t | +€80.2/t |
| Scenario 2 combined Working Residual | €194.8/t | €405.8/t | +€211.0/t |
| Scenario 3 combined Working Residual | €207.7/t | €427.9/t | +€220.2/t |
The important value for the following discussion is Scenario 3.
It deliberately widens the system boundary beyond E10 alone and gives the larger of the two combined gasoline/naphtha sensitivity cases.
The July 2025–July 2026 increase is therefore:
€427.9/t − €207.7/t = €220.2/t
This is an increase in Working Residual, not an identified increase in profit.
Windfall profit may, for taxation purposes, be defined as profit exceeding some specified reference level under exceptional circumstances. Whatever definition is chosen, however, the Working Residual cannot simply be substituted for profit.
The relationship remains:
Working Residual = Product sales value − Modelled Brent crude contribution − State burden
The Working Residual is therefore better imagined as a pot from which unresolved operating costs, commercial costs, risks and ultimately profit must all be paid.
Actual profit requires another step:
Profit ≈ Σ product-pool Working Residuals − production costs − additional feedstocks − logistics/trading costs and risks
Even this remains an approximation.
The Grass Is Greener analysis widened the geographical frame to six EU states but did not model the detailed economics or ownership of individual refinery and petrochemical facilities.
To determine actual profit would require the accounts, costs, transactions and operational circumstances of the individual companies and facilities involved.
And to determine taxable windfall profit in Germany would require yet another step:
the profit, the taxable entity and the basis for attributing that profit to German jurisdiction would first have to be identified.
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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