Posted on 04/26/2006 6:35:00 PM PDT by Blood of Tyrants
Okay, I have seen a LOT of threads claiming that oil companies aren't really making that much on each gallon of gasoline.
Oh, really? (blink, blink) Then explain the record profits by the oil companies.
Why sure. First, US oil companies don't import all of their oil. In fact several companies actually import very little. Where do they get it? Why, from wells on private and federal land that they drilled on years and years ago. What is the extraction cost to get it out of these wells? You can be darned sure that it is nowhere near $75 a barrel. In fact, I read that it is somewhere around $7 to $15 a barrel. Add to this cost a small royalty that they pay the federal government or private land owner and refining and transportation cost and you come up with maybe $25 a barrel.
Now, mix in the oil they bought 3 or 4 months ago at $52 a barrel that is just now coming to the refinery and you have an average of between $25 and $40 a barrel.
So what we have is huge profits at the expense of the consumer. How long will it last? The prices will start to drop once they feel they are starting to harm the economy. Congress and the media and the consumers stop bothering them and they look for the next opportunity to do it all over again.
Are you willing to take a smaller salary or sell whatever you produce for less within America if you could get more internationally? There is a concept called opportunity cost in financial analysis which states that the true cost of using some resource is the higher of actual production costs OR the highest lost opportunity cost of using or selling that resource for some other purpose. If you could produce a barrel of oil for $7, but you could sell that barrel on the world market for $55, it is costing you $55 dollars to use that barrel of oil not $7, and this would be in accordance with generally accepted accounting practices.
Your chart is skewed. Refining costs are nowhere near 22% (comes out to roughly 53 cents a gallon). Refining costs are more or less constant. Remember a few years ago when gas was selling for 80 cents/gal? The oil companies AND the retailers were making a profit while taxes were 40 cents on a gallon! That means that total production and distribution costs were about 25 cents a gallon.
Now lets go to the petroleum marketing system, they work on a per gallon markup. A profitable gas station works on an average of 10 cents a gallon. It starts at about 5 cents for regular to about 15 cents for premium.
Now the raw materials . aka fuel, is not a percentage of the product they sell. If they buy a tank car for $1.00 a gal.they sell it for $1.10 a gal. if they buy it for $2.00 a gal. they sell it for $2.10 a gal., get it. This works all the way thru the wholesale to the retail system. If you look at the profit margins for Exxon/Mobil it is about 10%.
Now if you buy 10,000 gallons of gas for $1.00 gal. and you sell 5,000 for $5,500 and you get a notice that the next tank load will cost you $1.25 a gal. or $12,500. Now you only have $5,500 dollars of fuel in the ground so you have to raise the Price to $1.35 gal.;you will only collect $6750 plus the $5500, you already collected, for a total of $12,250 - the $1000 you needed to pay your overhead. So now you have $11,250 in the bank to buy you next tank. Now you have to take $1,250 out of your pocket to buy your new fuel that the customers think you are ripping them off. This process goes on until the fuel price starts to go down and the dealer starts to sell his inventory fuel for the old high price and replaces it with the new lower price and he recoups the money he took out of his pocket to stay in business when the price was going up.
Now any other industry would have added interest to the borrowing cost to the products, only the petroleum industry cannot do it.
The gas station owners really run their station out of a labor of love.The real money is in the C-Stores, I built many but I am under contract and I cannot expose the financials. All I can say, the gas is almost sold as a loss leader to get people into the C-Stores, thats where the big money is made.
I hope this info will help my fellow Freepers understand this market. If anyone can explain this easier, I welcome your input.
I was just reminiscing. Not making an argument against raising prices. More competition and small profit margins make everything different today.
Because of supply and demand. People bid against each other for oil deliveries. The one with the oil is the one who paid what the other bidder was unwilling to pay. Oil is sold on the open market. I don't know what else to say other than it really is that simple.
Can I expect to obtain gold mined in South Dakota? For a lower price than Gold mined in Siberia?
If you want to federalize the US petroleum industry and put it on a cost plus basis go ahead, and soon we will be buying $100/bbl oil all from abroad as well as refined product.
You further demonstrate that you know nothing about the industry and their costs. You are off the planet with your assumptions. They are dead wrong, and irrefutable proof that strong opinions can be based on total ignorance.
I know my problem...I watched too many Westerns as a kid...
In the Westerns, they always had bad guys and good guys...Lots of times the bad guys didn't really ride horses and they never shot anyone...They had the money to pay others to do it...And quite often, they controlled the water sources and supplies...
And if you weren't willing to pay a high enough price, you didn't get any water...And of course, the bad guys always set the market value...
And then there was Ben Cartwright...Where are the Ben Cartwrights of the Country???
Right, Capitalism is greed. However, the other system is tyranny.
Well said.
And that is passed to the shareholders as dividends.
I remember. That was when oil companies were going bankrupt or seeking mergers to survive.
That was when the companies in Alaska were producing oil at a net loss, but to shut the wells in would have killed them.
That was when there weren't any profits and only losses, but armchair economists like you never noticed.
You were still bitching that gasoline was 27 cents a gallon like it was when you were a kid.
We're not talking about watermelons...Of course people have to buy the gas...Apparently you don't have to drive to work...You may not know it, but millions of Americans do...
well, here in Ca, last I checked anyhow, the state tax per gallon is .18, the fed tax per gallon is .18, and the sales tax per gallon is .0825 (in Los Angeles County), hmmmm,
.4425 cents per gallon is TAX...
But he is saying that the cost of American oil should be free.
Jolly Green you obviously know nothing about business. I must average 40% in my business just to stay afloat.
If you want to federalize the US petroleum industry and put it on a cost plus basis go ahead, and soon we will be buying $100/bbl oil all from abroad as well as refined product.
I'm sure all of the oil countries currently with American employees would be most pleased to find that the employees now get their paychecks from the Federal government. (CIA or NSA or?)
I just bet Chavez would give us special deals because we nationalized our oil industry.
NOT!
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