Something to think about! Gas Prices.

[KSig RC]

Originally Posted by macallan25

I'm sorry, but KSig RC......you are a complete douchebag. Why do you need a dumbass "source" from him? Why can't you just take his word for it? Maybe, just maybe.....he actually knows what he is talking about. He does go to Texas......the #1 Petroleum Engineering school in the country......it is quite possible that that is his major and he knows more about the industry than you do. Everything he has said is legit. I've been around the Oil and Gas industry my entire life. Father is an executive, interned at major companies, etc. I'm completely qualified to answer any of those questions without searching teh fucking internets for a bunch of numbers and reports.

That's good, dude, but I don't know you at all. How the hell do I know your qualifications? If we were talking in a bar, I'd probably believe you because you would tell me these things - help me out, guy.

It's quite possible he's a petro eng - I don't know that. I went to a top journalism school, but don't know shit about it other than 2nd-hand crap friends told me - I don't want to assume anything, because THAT would be a douche bag move.

Also, he's not giving any support for his arguments - just saying "oil companies make 10c. on a gallon of gas" . . . help me out then, where does the other $2.90 go?

I might be a douche for not knowing, but I genuinely want to know - so show me. Prove it to me, and I'll buy it - you've been on here long enough to know I'm not going to fuck with this guy if he can back it up, I'll fall right into line w/ him.

Originally Posted by macallan25

....It would be easier for me though to just call Larry Nichols, or A.K. McClendon, or Curtis Mewbourne, of Doug Miller, or Boone Pickens, etc. etc. I could probably write a dissertation on the subject after that, but it wouldn't really matter because you can't put a hyperlink on a phone call. (and if you don't know who any of those people are you should enlighten yourself.)

That's fine - but these numbers exist, right? So show me - again, I can't listen to your phone calls, I'm not there at your family events or social functions, and I have no idea who you are. I can't know these things - I live 1000 miles from an oil refinery.

Why shouldn't I ask for support on a blind Internet board? If I told you Roger Clemens can be statistically proven to be something less than the best pitcher of our generation, you'd want me to show those stats, right?

This is the same - it's something that is not intuitive, so show me, instead of telling me then fucking with me about it.

Put up for me, help me out.

[EE-BO]

Originally Posted by KSig RC

Also, he's not giving any support for his arguments - just saying "oil companies make 10c. on a gallon of gas" . . . help me out then, where does the other $2.90 go?

Right now the spot price in the marketplace for gasoline is running about $2.10-2.30 per gallon from what I can see. Texas Beta or macallan25- let me know if I am off. I am more into high-tech and securities these days, so I am not constantly following gas prices.

KSig RC- that price range I just gave, let's say $2.20 on average, is the spot price to buy gasoline in the trading markets (and presume the government tax effect is built in to some degree since this is a processed commodity destined for a sale subject to the applicable taxes.)

So the profit to be made from market to your gas tank runs about 70 cents assuming your $2.90 retail quote (which is reasonable.)

But this is where it gets complicated.

When oil is extracted from the ground, the costs involved can vary greatly. Not just the costs "right now" to keep the flow going- but costs to reach that point to get any flow at all.

Texas still has lots of oil, but it is only with the rising price of oil that is it economically worthwhile to introduce new and more expensive technologies to extract additional product. There is directional drilling for example- where you drill down and also sideways- sometimes for over a mile. There is also injection where an existing well is pumped with salt-water based fluid mixtures to get out remaining oil that could not otherwise come to the surface since the pressure is too low.

These technologies have been around for quite a while, but they only come into play when the market price of oil justifies their employment. When supplies are short enough (largely due to OPEC's manipulations geared towards maximum profit), then wells are opened and these alternative methods of extraction are put into place.

More simply put, the more expensive oil gets due to demand, the more alternative extraction methods are employed to meet that demand- but the costs to get the oil out also go up with these methodologies. And so while profit margins are preserved to an extent, they do not skyrocket upwards as has been portrayed by some politicians.

From there you have refining and transportation and all sorts of other costs involved. Thanks to factors I have mentioned in a previous post which cannot be blamed on oil companies, there has not been too much innovation in these areas- and so the costs are not easily reduced with technological efficiencies. In fact, they tend to rise as existing aging technologies require higher repair and maintenance costs.

To top it all off, there are forward contracts and other trading mechanisms.

I have one client who is making a fortune selling easily extracted oil from some its various holdings at the market price. But that client is also taking a bath on huge futures contracts where they agreed to sell future production of oil at under $40 a barrel back at a time when oil was trading in that range.

Their income statement looks terrible, but it is only because they locked in a set profit long ago at a time when oil was selling for less.

Companies that did not do that to the same extent are looking incredibly profitable right now because they are selling most of what they have at full market price.

Those are the ones you hear about in the news.

And that is the great silliness of all this to me. In the modern marketplace with very volatile pricing due to a great deal of uncertainty about the future of Middle Eastern and Nigerian supplies to the US- a lot of the profit and loss you see is tied up in whether an oil company adopted the right commodity trading strategy 5 or 10 years ago, not in the actual costs they are incurring to extract, refine and sell oil.

I hope this helps some. It is ridiculously complex- and unfortunately that makes it an easy target for politicians seeking to score points.

And on a final note- tax is a critical issue. The one way to drop energy prices in a hurry is for the government to stop taking an absurd profit on gasoline sales.

There is a bill that just passed in the Texas House which would ease taxes to the tune of 20 cents a gallon! We will see if it makes it through the Senate- but it is further proof that the great inefficiency in the energy markets without a substantive basis is in government taxation, not in the behavior of the oil companies.