$4.00 a Gallon Gas!

This morning I saw a teaser headline on Yahoo Finance, Motorists Can Avenge $4.00 Gas by Owning Oil Stocks. It turned out to be a pitch to buy stock in companies with substantial proven reserves. The article contends most of the money is made as soon as the oil comes out of the ground. There isn’t nearly as much profit in refining, delivery, and retail sales. It got me to thinking. One of my happy stories is Chevron Texaco (CVX). Did I avenge $4.00 a gallon gas by owning this stock?

On November 26, 2001 I bought 150 shares of CVX at $84.72 a share with $29.95 in brokerage charges. That totals out at $12,737.95. Today, without adding any money to my original investment, I now own 363.8471 shares of CVX valued at $39,008.05. That would be a profit of $26,270.10. The story is actually a little better than that. The first few years I owned CVX I used the dividends to buy shares in other stocks. Later, when I felt sufficiently diversified, I choose to automatically reinvest my CVX dividends back into more shares of CVX stock.

During that time period both the cars that I have used for my daily commute averaged a little over 28 miles per gallon. They both did better than that on the highway, but let’s stick to the local commute. Let’s propose for the sake of this thought experiment that all the gas I ever bought cost $4.00 a gallon. $26,270.10 divided by $4.00 per gallon works out to 6,567.525 gallons. Multiply that number by 28 miles per gallon and my profit paid to buy gas for 183,890.7 miles. Since I average very close to 15,000 miles a year on my car, owning CVX has paid to buy my gas for a bit over 12 years 3 months, a period of time longer than I have actually owned the stock.

My wife also owns a car. We put about 7,500 miles a year on that car. If we run the same math on a total of 22,500 miles per year on both cars and a more realistic average price of say $3.25 a gallon what happens if we drop the average mpg to 26.5? Her car gets a little under 26 mpg on local driving. In this example, the profits from my CVX stock would have only paid for a little over 9 years and 6 months combined family driving, only about a year and four months less than I have actually owned the stock. Since all three cars get over 30 miles per gallon on the highway, I would guess we came pretty close to breaking even.

Just something to think about.