Price of gas. Sorry, I have to.

[bigsteel15]

OK, so that I don't hijack Russianwolfs thread I'll start a new one.
I know this will get a lot of discussion and I will take whatever you care to throw at me.

Let me start by stating that I work in the oil/gas industry and make a substantial amount of my income based upon how busy it is out there which is of course dictated by the price of a barrel of oil and MCF of gas.
My view as a consumer though is still the same.

The price of gas in the US and how much people complain about it has always mystified me.
I understand that it has increased substantially in the last few years but in my opinion it's about time.

As the current largest consumer of petroleum products in the world, demand would dictate that you pay the least.
As a resident of Alberta, this peeves me off. Here I am sitting on top of the second largest reserve of oil in the world and I'm paying $4.10 US per gallon ($1.08/litre).
Six months ago that was about $6 CDN, now it is about $4.80 CDN.

Big oil tries to tell us that over half of this is taxes, but then here they are recording the largest profits in their history.


Enough rant.
I'm also curious what guys like RAYINTHEUK and ROD KIRBY will have to say here.

Thanks for listening.

[Deadhead]

I mentioned this in a different thread (and I was totally OT with it), but I think it's worth repeating here.

A few days ago I saw/heard something on the History Channel that made a lot of sense. The show was about the history of off-shore drilling. If you'll remember back in the late 80's and early 90's, oil was trading at around $25-$30 per barrell. At the time, OPEC was cutting production to try to keep it at $30 per barrell.

"Big oil" had to figure out how to make money on $30/barrell oil. Cost cutting and new technology were the answer (aren't they always?). So they bit the bullet and invested.

Fast forward 15 years and the market has changed. China has gone from nowhere to being the #2 consumer of oil. Ladies and gentlemen, that is a huge change in global demand!

So when I hear people complaining about gas prices - and especially "big oil" it really gets my goat. If you think it's unfair that their risk of investment is paying off, then buy some ExxonMobil stock.
(This isn't directed at anyone - I'm using a general "you" here.)

Brian, are you saying your fuel costs have gone down in the last 6 months? From $6 CDN to $4.80 CDN?
I'm curious about the recent trend of fuel prices in other countries as well.

[bigsteel15]

Brian, are you saying your fuel costs have gone down in the last 6 months? From $6 CDN to $4.80 CDN?
I'm curious about the recent trend of fuel prices in other countries as well.

Only in relation to the US$. 6 months ago (probably more like 1 yr ago now that I think about it) $1 US = ~$1.5 CDN, now $1 US = ~$1.2 CDN.
Just trying to put in perspective for my US friends here.

As I mentioned, I'm not really in a position to complain, except about others complaining. What really gets me is the fact of where I live and the comparative price we pay here where the supply originates.

[jziegler]

I've been complaining along with the rest, and looking into ways to cut my consumption at the same time. I significantly cut down on my heating oil needs this winter, and am continuing to invest to cut that further. More insulation, better weather stripping, and the like. I know that my next car will be significantly more efficient than the current one.

As for complaints about "big oil", I will continue to complain in certain respects. Here are my big ones:

The get big tax breaks and the like through the recent energy bill. Why?

The price at the pump jumps as soon as crude prices go up, even though the gas was produced with the cheaper crude. But, when crude prices go down, the gas prices don't go down until that crude works its way through the system. Either price the gas according to the price of crude when it was produced, or the price of crude when it is sold. Don't price according to whatever makes you more money. This one really annoys me more than anything else.

The oil companies do deserve to make a profit off of their investments, if they were good ones. But, I think that some of their recent behavior is not reasonable profits, it is just price gouging.

I also have a problem with the idea that they may be buying up potential competing technologies and prevent them from going to market. I don't know how much this is actually happening, it may be just a conspiracy theory, but I suspect that at least a little happens. Would cars be more efficient if the oil companies didn't have an interest in less efficient cars? Quite possibly, but I can't prove anything.

Jim

[Stytooner]

Look fella's, if you only make $10 per hour and have a 35 mile one way trip to work and drive an older American made guzzler to work, then your first hour just paid the gas you spent that day.
The reason I think you see most complain is because along with gas, everything else has increased in cost. If you are an hourly wage earner, chances are you haven't had near the pay increase it would take to keep you where you are used to being. So, you are feeling the crunch. Ergo so many complaints.

[pierhogunn]

My 2 biggest gripes is that
1. Half of the cost of the gas that we buy in the US is Government regulation.
2. That the Oil companies are taking all of the heat for a problem that they are only at MOST 1/3 responsible for

Lets get the government (EPA Regulations / Ethanol Subsidies / Mis-appropriated gas taxes) out of the fuel business and see where prices go.

[Warren]

I'll reply to the observation about the retail stations' price jumps. If the station understands that the next purchase of gas is going to be X amount of dollars more than the last purchase, the price at the pump has to go up in order to be able to purchase the next load. The profit margin as to be maintained in order to pay taxes, salaries, mortgage, utilities, and etc. The retail price per gallon has to reflect the cost of the next purchase of product otherwise they couldn't refill the storage tanks.

[jziegler]

I'll reply to the observation about the retail stations' price jumps. If the station understands that the next purchase of gas is going to be X amount of dollars more than the last purchase, the price at the pump has to go up in order to be able to purchase the next load. The profit margin as to be maintained in order to pay taxes, salaries, mortgage, utilities, and etc. The retail price per gallon has to reflect the cost of the next purchase of product otherwise they couldn't refill the storage tanks.

That's fine, but then why doesn't the price go back down when they realize that the next purchase will be cheaper? I understand they need to make some money, but I don't think that they should be able to have the price increased at both ends. Pick one or the other. To do so for both is unfair to the customer.

And I don't think that it is just the retail stations that do this. It seems like the wholesale prices reported in the news do the same thing. So it looks like the price is high on both sides of a spike at all levels of production and distribution, which leads to a fair bit of extra profit.

Jim

[bigsteel15]

I'm curious, what is the price in your area these days Warren?
Being in Alaska, you're in a similar situation as Alberta with lots of crude supply locally.

[430752]

Wait, why aren't you asking about the refiners, since the crude oil and the gas you put in yer tank are two different beasts. So, with high demand and high prices you'd think refineries would be working most riki tiki, no? No. Last I heard, meaning a few days ago, they were at 85% collectively. Who doesn't strike when the price is high except those who want to maintain high prices.

market forces my butt wax. I love it when they use economic theory to justify profits based on costs, risks, etc. but when you use market theory to attack supply and demand? nada. clam up.

and don't get me started on this "we'll refrain from stocking the nation's strategic oil reserve" business. the thing is already basically full (its always in a state of flux), so what are we saving?! I don't know what's worse, this imbecile or this imbecile's ego that thinks he can get over on us like a bunch of chumps.

curt j.

[JR]

Lets get the government (EPA Regulations / Ethanol Subsidies / Mis-appropriated gas taxes) out of the fuel business and see where prices go.

I'm not sure that's an entirely good idea, particularly the part about the EPA. If we're going to burn fossil fuels we'll need a way to ensure we don't choke ourselves in the process. We've made great progress controlling particulate and noxious gaseous emissions over the last 20 years in the US. The EPA has done a reasonably good job, IMV, facilitating that, sometimes prodded to action by the California Air Resources Quality Management Board.

I have no idea if the oil companies are squelching alternative solutions. I think it's unlikely, though. The lesson of the American trains is one every business student learns, and I think it applies here. The lesson goes that the train guys saw airplanes and said, "That's an interesting development, but it doesn't apply to us. We're train guys and they're plane guys." They soon discovered that all their passenger revenue had gone to the other guys. They were supposed to have said "We're transportation guys, and we better take seriously this new form of transportation, or we'll be left out."

The oil guys are, or will be, in the same boat. Oil is a finite resource that will run out. Between now and then it will be difficult to manage global demand. New alternatives will arise and the clever oil guy will say, "I'm in the business of fueling the transportation market, so I bettter be on the lookout for viable alternatives that I can exploit profitably." The stupid oilman will say "I'm in oil, I don't need to understand alternatives."

I believe we just haven't been faced yet with compelling alternatives. Bio-diesel is interesting and has the benefit of being able to use current, or similar, processing and distribution methods. Hydrogen has some great features, but requires some major changes in electricity production necessary to process the fuel (can anyone say "nuclear"?) and a whole new distribution scheme, all of which would require major demand by the the consumer.

What would be a compelling event necessary to cause change? Well, shortage of supply sufficient to make other fuels comparatively economical. In other words, the price of gas has to go up, which it has done and will continue to do until we run out sometime later this century.

I don't know what the profit margin is at the oil companies (I'll look it up), but my guess is that the "gouging" going on is actually business as usual amplified by the per-barrel price. In othe words, the margins are the same as they have been, but the actual profit is greater due to the high numbers involved. I'll check my theory...

My 2c
JR

edit: I found some information here indicating, if I got it right, industry margins going from 4.2% in 2002 to 7% in 2004. http://www.usembassy.it/pdf/other/RL33021.pdf

Other sources indate current margins are at ~9%. If this is accurate, it blows my theory out of the water, and we should hang the crooks!

[messmaker]

Point #1 I think we are pretty hard on the oil companies. They made a lot of money but only about 10% on their money. Banks get over 20% on a lot of product and we can't wait to borrow more money.Point #2 I understand that we are only oppperating at about 85% of out refining capacity. We are still 2 refineries short since last years huricane season.These 2 were good for about 15% of our total.

[sacherjj]

The price at the pump jumps as soon as crude prices go up, even though the gas was produced with the cheaper crude. But, when crude prices go down, the gas prices don't go down until that crude works its way through the system. Either price the gas according to the price of crude when it was produced, or the price of crude when it is sold. Don't price according to whatever makes you more money. This one really annoys me more than anything else.

This is my biggest problem with the system. I remember hearing that the price of milk was going to go up, because of a supply issue. (Don't remember if this was mad cow or what.) Sure enough 4-5 MONTHS LATER, the price goes up. If the price of crude goes up, 4-5 HOURS LATER, the price on the pump changes. They sell gas for $0.40 more than the profit they used to be making on it. On any other industry, they would be sued for price fixing. Since all gas stations play the same game with their own, self serving oligopoly.

[maxparot]

My complaint with the Big Oil is simple. There hasn't been a new refinery built in the US in 15 Years. After record profits it would make sense to reinvest in your infrastructure but not if you are a oil company that wants to keep the price artificially high. During peak summer demand they claim that the price is based on the higher demand yet they never run the refineries at 100% output. The other thing is we aren't talking about peak use shortages, we never (almost) seem to run short of gas unless there is something that destroys the supply line. My feeling is regulation through taxation doesn't work the gov't should step in and regulate the profit and refinment of all fuels. Let big oil complain for about unfair regulation instead of people having to worry how they are going to make ends meet. You think they would stop selling in the biggest market if we cut their profits in half? I don't think so I think if there is any profit to be make they will still go for it. With that in mind I'd say regulate them in to a 10% profit margin or less. Why? Eminent domain! If they don't like it the gov't can take it all together.

[Joe Lyddon]

There are several things that "Get to me"!

1.
"OPEC was cutting production to try to keep it at $30 per barrell."

To me, that suggests price fixing / control... They have a cartell to decide on how to price fix! Anywhere else, especially in the U.S., that would be against the law! But they get away with it!

2.
The lame brain excuses everyone comes up with to try and justify the huge price increases... It's always some else's fault... the taxes... the additives... going to heating oil instead... there was a fire... & on & on...

But then the real truth eventually comes out... When all of the oil companies report "Record breaking triple profits..." ... dah... Does it take a rocket scientist to know why?! They have been price fixing and controlling it so it can happen!! Simple as that! It's price gouging on a giant scale!

A famous quote by a TV celebrity that I really like...

"Don't Pee on my leg and tell me it's raining!"

3.
The merger of Exxon & Mobil should NOT have been authorized...
I saw the writing on the wall at the time... All it has done is give them more power to keep things fixed.

4.
G R E E D ... is what it's all about... Plain and simple.

Am I greedy? No, I'm just on a somewhat fixed income... I feel I have a right to be pissed!

5.
Oil touches everything we do... Plastics, tires, electrical power, truck transportation of all goods, airplane fuel, boat fuel, insecticides, clothing, food, water, paint & finishes, cosmetics, rubber, and on and on... everything!

When the costs to produce all of that stuff go up, Wages, Salaries, and Sales Prices have to go up! I call it Inflation due to GREED!

Then, when the Fed. raises interest rates, like they did in our last big recession, it just makes the whole economy that much worse!
When everyone has to pay more & more for gas, that leaves less & less to buy other things... Sales drop... Recession happens... could even lead to a full fledged Depression!!

6.
And all because the oil companies want to control the price of oil (gas) so they can greedily make more money!!

7.
Am I on a soap box?
You're right... I'll get off of it now...!!
Have a great day...
Don't forget to bend over for the oil companies to do their thing!