Gas Prices Blame Game ( "stop stalling...start drilling" )

The Washington Times ^ | May 18, 2008 | Ed Feulner

[kellynla]

With fill-ups routinely costing $60 or more, cost-conscious drivers naturally look for someone to blame. And just as naturally, politicians are happy to blame others.

Enter "Big Oil," the demagogues' favorite villain. Gas prices soaring? It's because oil companies want "excess profits," as Barack Obama puts it. Right? Wrong. The truth is more complicated.

Let's look to California, driving capital of the world. Officials there watch gas prices carefully. During March and April, a state analysis found "distribution costs, marketing costs and profits" made up about 10 cents of the cost of a gallon of gasoline, which ranged from $3.46 to $3.89. Notice that dime is less than 3 percent of the total retail cost, and profits account for only part of it. So those "excess profits" are actually well below 3 percent of retail costs.

Of course, that's little comfort to tapped-out drivers. And the big oil companies are certainly making big money — Exxon Mobil alone earned $40.6 billion last year. But such profits follow naturally when a company sells a product so many people want to buy. Some recent history offers us a bit of perspective.

In 1998, a recession in Asia created an oil glut. Prices plunged to historic lows (near $10 a barrel), and American drivers reaped the benefits, with gas dipping below $1 per gallon. So how did Exxon fare in those days of low prices?

According to Forbes magazine, Exxon earned more in profits than any other American company in 1998. Sales increased 3 percent over 1997 and profits jumped 12.6 percent, to $8.4 billion. Again, remember: Oil was remarkably cheap that year, yet Exxon earned double-digit profits. Few complained then.

[underbyte]

Stupid analysts.

Go to France or any where in Europe 2004 -08 prices are only up 10-20% in Euro’s.

Problem is the Dollar is worth POOP these days, takes 2X dollars to buy the same gallon.

We are all going to be driving Little 2 cylinder metro cars in 5 years with a little more social/financial engineering from the liberals

[LOC1]

Here is the data for 2005 and 2006 comparing the oil companies required to report detailed information to the Energy Information Agency (Financial Reporting System - FRS companies) to the same data for all manufacturing companies. As you can see, net income is less that 10% of income for both groups and roughly equivalent on a percentage basis. http://www.eia.doe.gov/emeu/perfpro/tab01.htm

Here is a comparison of net income between the two groups over a longer period of time:

http://www.eia.doe.gov/emeu/perfpro/fig03.htm

Here is the net income of FRS companies in dollars per barrel of product over a long period of time. The average is less than $2.00 per barrel, i.e. less than 4.75 cents per gallon.

http://www.eia.doe.gov/emeu/perfpro/fig05.htm

[quant5]

For true perspective of why oil is so expensive, begin Googling currency debasement and type in this:

this time is different & harvard

The very first search listing describes several hundred years of economic history. Bottom line, oil is this expensive because our monetary policy has been to debase our currency. Debasing/devaluaing currency is a remedy for governments to indirectly tax it’s citizens because of bad monetary policy and wasteful spending. Speculation is a part of expensive oil but a smaller portion, it was $17 a barrel when price was $110 or roughly 15%. It simply takes more dollars (roughly double in five years) to purchase the same barrel of oil.

[quant5]

Your correct.

[Izzy Dunne]

OK, judging by that, the 4.75c per gallon profit figure fits with the idea that "distribution + profit + marketing = 10c per gallon.

At least, it's not unreasonable.

So, why was SoldierDad insisting it was BS ?

Just wonderin'

[mvpel]

What boggles my mind is that the Dems are so stupid that they think that an extra 70,000 barrels per day by suspending Strategic Petroleum Reserve deposits will help lower prices, but an extra million barrels per day from a tiny corner ANWR won’t help lower prices.

[texson66]

There is plenty of oil; just not enough refineries. The last US refinery was built 30 years ago!

Global whining by the demonrats has stopped this nation in its tracks with new drilling and refineries “frozen” by the demonrats.

[dearolddad]

What is bad for the people is good for the ‘Rats who just last week voted to filibuster an amendment that would have opened ANWR and some of the Alaskan coast for drilling.

See my tag line.

[SoldierDad]

It is MY own opinion, and I’ve yet to see any actual independent study provided which demonstrably shows that distribution, marketing, and profits makes up only 10 cents of every gallon of fuel based on the price at the pump. Where does the other $3.79 per gallon (approximate) go? A recent market analyst on one of the 24 hour news programs provided information which suggests that up to 60% of the cost for a barrel of crude is based on market speculation, with the rest being from supply and demand issues. I’m guessing the issue is so clouded and confused that no one really knows why the price is as high as it currently is.

[Izzy Dunne]

One reason I was confused is your post had your remarks in italics, as if you were quoting someone.

[mvpel]

Oil demand worldwide has skyrocketed, that’s demonstrated fact. And what else is China going to do with all the dollar bills Wal*Mart ships over there than buying oil, eh?

At current prices, crude oil is about $2.85 per gallon. That doesn’t leave much left to pay for refining & distribution in a $3.89 gallon of gasoline, especially when around 25% of Exxon-Mobil’s GROSS revenue goes to pay all kinds of taxes to various governments worldwide, including US taxes on its non-US operations.

[SoldierDad]

Yeah, I’ve seen this already. So? Where is this information coming from? Who provides it? How can anyone judge it’s veracity? For example, if I calculate 8 percent of $3.859 (approximately the price per gallon of fuel at the least expensive station nearest me) I get 30+ cents per gallon - That’s 3x the 10 cents this article claims for distribution, marketing, and profits combined, and your post is suggesting this is for distribution and marketing alone.

[SoldierDad]

Yeah, I forgot to use </> to end the italics. Sorry. Once you hit post it’s too late.

[SoldierDad]

$2.85 a gallon based upon what? What’s the cost per barrel at the source? How much does it cost to pump each barrel from the ground? How much for transportation costs, etc? There’s a whole lot that’s not being said about why the price is as high as it is. I’d like to see some independent breakdowns for the cost for every aspect of what goes into getting that one gallon to the pump - and I really mean independent. I don’t trust analysis coming from the industry itself.

[kellynla]

“Yeah, I’ve seen this already. So? Where is this information coming from? Who provides it?”

“yeah?”

you’re real big with the “thank you’s” ...

if you had bothered to check the link I provided you,
you would know that the info comes from the Energy Information Administration which is part of the Department of Energy...

you’re welcome...

Maybe you could get your son to teach you some manners the next time he is home on leave.

gezzzzzzzzzzzzzzzzzzzzzzzzzzz

[kellynla]

“There is plenty of oil; just not enough refineries. The last US refinery was built 30 years ago!”

We all know that its been 30 years since there was a NEW refinery built but as “thackney” will confirm, the oil companies have been expanding the existing refineries over the years which I believe has been equivalent to a new refinery each year but I don’t stand behind that; “thackney” would be able to give you the exact numbers

But we do need to drill more and if we substituted domestic for the foreign oil we import; it would sure be a answer to the existing problem!

[mvpel]

$2.85 a gallon based upon what?

Based upon a $120 spot price for a 42-gallon barrel of crude oil, of course. The spot price being what a willing buyer is ready to exchange with a willing seller of a barrel of oil.

It'd be nice if gas stations would start breaking out taxes and fees on gasoline receipts.

[SoldierDad]

Manners? That's what you want to flame me with? How about let's stick to what the issue is? You want me to buy the BS that 10 cents of every gallon of gas/diesel goes to marketing, distrubution, and profits when by the informtion you posted to me approximately 30 cents of every gallon goes just to marketing and distrubution without profit even entering the picture. Who is being disengenuous here?

Just so you know, information coming from the government (DOE) does not guarantee that it is factual. Do you believe everything that people in the government tell you? Do you have any independent sources with which to verify what the DOE claims?

[RetiredArmy]

Nice article, but sadly, only 1% or so of Americans will read it or even hear about it so they can read it.

[LOC1]

Perhaps SoldierDad has not seen the data, or perhaps he already has his mind made up.

The question about the reasonableness of oil company profits gets asked so often that the EIA has essentially automated the reply by requiring the largest oil companies operating in the US (FRS companies) to provide more data to the EIA than they provide to their own shareholders.

The EIA agglomerates the data and then publishes it after a delay. Data for 2006 is the most recent available.