Something to think about! Gas Prices.

[GeekyPenguin]

Originally Posted by Texas Beta

Please do a more thorough search next time. Refineries on average make about 10 cents for every gallon sold. Refineries are at maximum production to compensate for the war and random natural events such as Katrina which shut down pipelines and ports.

The government makes 20 to 25 cents on every gallon of gasoline. Why don't you instead lobby your representatives to lower the tax? Why try to hurt an industry which employs hundreds of thousands of people world wide, an industry that puts billions of dollars into the American economy.

This is a perfect example of people following the crowd and not thinking for themselves.

Edit* I like how current your source is!

Let's try this source, then...

http://www.statesman.com/business/co...asprofits.html

"Gross profit margins on gasoline at the nation's refineries reached $31.22 per barrel last week, the second-widest recorded profit margin in U.S. history, according to data from the New York Mercantile Exchange. The margins are up 57 percent since April 1 and have more than quadrupled since early January."

[kddani]

Originally Posted by Texas Beta

Edit* I like how current your source is!

So where's your source? Just curious, how about some support for what you're saying?

[Tom Earp]

NEAT!

Do or do not do!

Dat Be Da Question?

[EE-BO]

Just to clear this up- I think some of you might be talking about gross margin (gross profit) and some of you are thinking about net profit.

Keep in mind too that as the energy markets continue to deregulate, you will see more anticipation built into current pricing. As we have seen at certain points recently, prices for future delivery are more of a driver of current prices than actual supply and demand.

This passes down to the retail gas station owners who are charging you for gas based on the cost of supply they are securing now- not what they already have in the tanks or on the way. It is the only way they can avoid cash flow difficulties in a market with rising prices.

Much of the extra profit that is perceived today goes to the traders (and many of the majors do have energy trading divisions) and not necessarily to those responsible for the actual process of getting the stuff out of the ground and into your car.

Ironically, however, that actually creates a certain long term stability that would not exist if everything traded purely on the supply and demand at a given moment- but it comes at a price.

Yet there is some variability in the marketplace and I think consumers forget all too soon that energy companies frequently go through long periods of huge financial losses and layoffs. It is unrealistic to complain about their profit margins in a specific period of time- especially when there have been a lot of very unusual events affecting supply and at a time when the fundamental nature of the energy markets is changing courtesy of deregulation.

[Texas Beta]

I actually just googled 'profits per gallon oil refineries'. it produced a lot of articles dated from this year, not 2005 like Jons post. There is no doubt that refineries make quite a bit of money per barrel of oil, but we are talking about the profits generated from gasoline production.

[KSig RC]

Originally Posted by Texas Beta

I actually just googled 'profits per gallon oil refineries'. it produced a lot of articles dated from this year, not 2005 like Jons post. There is no doubt that refineries make quite a bit of money per barrel of oil, but we are talking about the profits generated from gasoline production.

Soooooooooooo . . . feel free to source your claims.

[cuteASAbug]

Originally Posted by Tom Earp

NEAT!

Do or do not do!

Dat Be Da Question?

And somewhere, Shakespeare is rolling in his grave.

[NutBrnHair]

Will this affect my Exxon & BP stock???

[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.

....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.)

[Tom Earp]

Originally Posted by cuteASAbug

And somewhere, Shakespeare is rolling in his grave.

Sorry, but screw Wille S!

I am talking about GAS!

What you put in your tank to just drive around to much!


No there seems to be a little margin as was said as there are no refineries that are not owned by Petroluem Companies! DAR! Are they taking the Billions in Profit and builoding REFINERIES? Heck NO!

The hard hit are the independent gas stations and the customers being WE!

So, do not buy or buy!!

No one can decide for you!

[LadyLight]

There's a brief possible ray of light for those of us in Texas regarding gas prices. The TX legislature is seriously considering dropping the 40c per gallon tax through the summer months when prices peak, at least that's what the local news here in DFW reported- haven't heard anything more recently so I don't know.

[jon1856]

Originally Posted by Texas Beta

Please do a more thorough search next time. Refineries on average make about 10 cents for every gallon sold. Refineries are at maximum production to compensate for the war and random natural events such as Katrina which shut down pipelines and ports.

The government makes 20 to 25 cents on every gallon of gasoline. Why don't you instead lobby your representatives to lower the tax? Why try to hurt an industry which employs hundreds of thousands of people world wide, an industry that puts billions of dollars into the American economy.

This is a perfect example of people following the crowd and not thinking for themselves.

Edit* I like how current your source is!

As I indicated, up front, was a very quick down and dirty search.
And yes, I saw other sites-many of them from the Oil Companies.

Found this one from the DOE-2005 as well.
http://www.eia.doe.gov/bookshelf/bro...05primerM.html

Found this site which could be rather interesting go through:
http://www.oilwatchdog.org

And this:
http://www.consumerwatchdog.org/ener...t+Profiteering

http://www.consumerwatchdog.org/energy/rp/6775.pdf

And this one answers the question about the mini-marts:
http://www.wgal.com/news/9336051/detail.html

[EE-BO]

Originally Posted by Tom Earp

No there seems to be a little margin as was said as there are no refineries that are not owned by Petroluem Companies! DAR! Are they taking the Billions in Profit and builoding REFINERIES? Heck NO!

Refineries are among the most expensive assets to own and operate- you have to have a fortune to buy one, plus you have to be able to handle significant cash flow emergencies when supply is cut short or you have an internal problem and go through a period where you are refining a lot less product than is possible in a plant that is largely driven by fixed costs (meaning that most of your costs are the same whether you are running at 10% or 90% capacity.)

Oil companies have been trying for decades to get permission to build more refineries or even get permits to do massive upgrades and expansions on existing refineries- and without much luck. You need permission not only to build one but in many cases just to improve upon existing assets.

Overexuberant environmental interests and the "not in my backyard" mentality have done a great deal to prevent oil companies from updating and expanding refinery capacity to meet future demand- just as those same interests have hindered the expansion of our nation's airport system which is a major reason for flight delays and the domino effect that can shut down flights around the country if just one major airport is closed for any period of time.

Just to confirm what macallan suspects, Texas Beta is in fact in a position to be an expert on this subject- and so you just have to take his word or not.

I could say far more, but I have done consulting for many, if not most, of the major oil companies based out of Texas in my career to date- and it is not appropriate or productive for me to get into details and where I got the info.

People are going to believe what they want to a certain extent. And one of the great lessons many have learned in the internet/message board age is that you never do yourself a favor if you give people every detail they want to prove you are right since often you are just putting yourself at risk for no reward.

Oil and gas accounting is incredibly complicated. In 20 pages I could not even explain the basics. How you determine the true cost of a given product in this industry when a single well or field can produce many products from the same piece of ground that use some or all of the assets of the company in terms of extraction, transportation and refinement is yet another complexity that explains why oil and gas accountants are some of the best paid in the profession.

And to address the most common argument that oil companies should just "charge less" for their raw production so that the end products are cheaper- a significant percentage of oil fields are owned by a great many people. It is not uncommon for a single field to have over 100 owners- and the oil company in question extracts the oil and sells in exchange for a piece of the profit (and there are countless ways in which these arrangements are set up.)

So an oil company can't just charge less than the market price because then they are cheating the people who have a piece of ownership in the field where the oil came from.

The bottom line is that this is an incredibly heavily regulated industry and the price of the products being sold is set by a free and open marketplace. So it is very difficult to put forth a rational argument for price controls- I have yet to hear one ever.

Yes, you had some collusion issues with Enron- for example- but that kind of dishonesty can happen anytime multiple parties in a free market conspire. Enron is a poster child for dishonest conduct, but it is no more a measure of the energy industry as a whole than Michael Milken is a measure of the securities industry.

[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.