Gas prices - who profits?

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When the average price of a gallon of regular gasoline peaked at $3.07 recently, it was partly because the nation's refineries were receiving an estimated 99 cents on each gallon sold. That was more than three times the amount they earned a year ago when regular unleaded was selling for $1.87.

Companies that pump oil from the ground swept in an additional 47 cents on each gallon, a 46% jump over the same period.

If motorists are the big losers in the spectacular run-up in gas prices, the companies that produce the oil and turn it into gasoline are the clear winners. By contrast, truckers who transport gasoline, companies that operate pipelines, and gas station owners have profited far less.

For a company such as Exxon, producing a barrel of oil from an existing well costs about $20. When the selling price exceeds that, the increase is almost all profit. After Katrina, the price of oil set a record, approaching $70.

Refiners processing the oil into gasoline faced lucrative market conditions. They may have had to pay producers more for the oil, but they were able to sell gasoline for higher prices as a result of the short supply and the spike on the mercantile exchange.

In their view, the increases were justified because the market dictated that their final product - gasoline - had risen in value. Refiners, particularly those with most of their facilities outside the path of Katrina, cashed in.

After gasoline leaves refineries, the profit margin becomes narrower, even when prices are high. The bulk of the increases at the pump typically is not making gas station owners rich.

Who sets the price at the pump depends on who owns the station. At stations owned by big oil companies, prices are based on local supply and demand and what the companies think customers will be willing to pay.

Other stations may bear the name of a big oil company but be owned locally, in which case the owner often pays a non-negotiable price for gasoline and then determines how much to charge customers.

Some of these owners say they typically charge 10-20 cents more than the price they pay for gasoline, although the amount can vary depending on competition. They say they generally do not make more money with high prices.

Station owners complain that credit-card companies are benefiting from higher pump prices. Many of those companies charge a percentage fee to the stations based on the customer's total charge. So as customers' bills rise, so do the credit-card companies' fees. As prices have risen, more people are using credit cards.

Companies that distribute, market and sell gasoline to the public took about 18 cents on each gallon of gas when the average price hit a peak of $3.07 a gallon. A year ago, they took 17 cents of each gallon.

When prices rise quickly, as they did after Katrina, refineries make a larger share of the profit because they immediately pass along price increases to buyers. But gasoline suppliers and station owners typically move more slowly in passing along price increases, limiting their profit.

Conversely, as more gasoline supplies came on the market after Katrina, prices charged by refiners for their gasoline dropped rapidly. But gas suppliers and station owners did not pass those reduced prices along as quickly, a typical pricing pattern that allows them to make up for reduced profit margins when prices were rising, analysts said.

On the way up, one guy is making money. On the way down, the other guy is.

Reply to
Steve
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This is true. A relative with a station charges 10 cents over the price of gasoline for that day. Where he can make extra (or lose more) is on how well he can predict the trend of prices. If he fills his storage tanks with $2.80 cent gasoline, and the price spikes to $2.90, he's making an extra 10 cents per gallon, but if the price falls to $2.70 he's selling at cost. The retail price he can charge is set by oil-company owned stations, and places like Costco, not on the price he paid for the gasoline.

Producers with U.S. wells, like BP/Arco are making record profits because they don't by oil from the middle east. They could pump even more crude if they had a way to refine it, but it's more profitable to keep the supply low.

Reply to
SMS

What you post is basically true with one caveat. The market price of crude is NOT established by the oil companies, it is set by the commodities market. Don't confuse production costs with retail pricing. Retail prices are set by the market place. The speculators have bought future production for as high as around $70. Naturally refiners will have to pay what the market demands at the time they buy their crude. If it drops to $50 the speculators that expected it to go over $70 will lose. If it goes up to $80 they will win out. Domestic producer that lack refining capacity will need to sell their excess crude on the same market at what ever the market demands at the time. The average consumer thinks of gasoline when they think of the need for crude.. Big mistake, gasoline is a byproduct of refining. The basic need for crude is for the carbon used to make a zillion products use in the market place. Let us say all of a sudden every vehicle attained a mpg rate twice what it is today. Do you think our need for crude or the price of gasoline would go down? Not likely very much. Because of the transportation and environmental costs to produce, store and transport gasoline, the oil companies will simply burn off raw excess gasoline production at the refinery if the retail price got too low. .

"SMS" wrote in message news:3Pd0f.1087$ snipped-for-privacy@typhoon.sonic.net...

Reply to
Mike Hunter

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