Posted on 04/03/2008 10:23:07 AM PDT by wny
Can we just stop whining about gasoline prices and oil-company profits?
Do I enjoy paying $3.50 a gallon for gasoline? Of course not. I’d like it to be under $2 as it was a few years ago. I’m sure we’d all like it better if it were under $1 like the good old days. But what about those profits? Are they really that “huge”? Or “obscene”? Or “enormous”, or whatever adjective the congressional windbags and assorted crybabies are using. Let’s look at some numbers, shall we?
Assume $100 per barrel for crude oil. The standard oil barrel contains 42 gallons. That’s $2.38 a gallon right there. I’m not an expert, but I do know when 42 gallons of crude oil is refined, the result is not 42 gallons of gasoline. Let’s be conservative and assume the process is 95% efficient. Then we get 39.9, say 40 gallons of gasoline. That raises the per gallon cost to $2.50. Then there’s the cost of refining. Again, I’m no expert (maybe some of you industry types in the know can chime in) but these costs must be every bit of 10%. Again, let’s be conservative and assume 5-percent. That adds 13 cents. Maybe that’s to high – let’s call it a dime. Price per gallon is now $2.60. Before it can be refined, it needs to be transported to the refinery. Likewise, same assumptions, add another dime. No, let’s make it a nickel. Now the per gallon price is up to $2.65.
Now we come to the infamous profits by the evil oil companies. I’m sure it varies, but assume 8%. That’s 21 cents. I’d bet it’s closer to 10-cents a gallon if not less, but let’s stay with 21, lest it appear numbers are being massaged. Now we arrive at $2.86. Gasoline needs to move from the refinery to the retailer. Add another nickel - $2.91 a gallon. Now the local station needs to sell it and of course they need to make money. Very competitive these local gasoline retailers. Say they only mark it up 9 cents per gallon, just over 3% profit for them. We arrive at $3.00 for a gallon of gas.
But wait! We haven’t talked about the tax man. Any discussion of “gouging” should start and end here. I believe the federal tax is 18 cents per gallon. Which brings us to $3.18. Here in the once great state of New York (now a laughing-stock), taxes on gasoline include the petroleum-testing fee, state excise tax and above all others, the state sales tax that is applied on the price of gasoline after almost all other taxes (state and federal) have been calculated in. The state actually taxes the taxes. New York state taxes add 35 cents to a gallon of gasoline. Final price at the pump: $3.53. The big, bad oil companies make 21 cents a gallon. And spend billions finding, recovering, transporting and refining for their profit. Government simply helps itself to 53 cents a gallon and vilifies the very enterprise that makes it possible.
Our discussion turns to the whining about high prices. Again, I would certainly prefer to spend $20 a week commuting than $60. I’m sure there are many people out there that are enduring genuine hardship and having to make tough choices. Eating cereal for supper so they can afford to get to work. And for those of these people that live within their means, it’s a hardship. But how many of these people vote to put the same useless windbags back in office over and over hoping they’ll “do something” about the high prices by going after “big oil” while remaining oblivious to the reality we just discussed?
Be that as it may, the more annoying whining emanates from those equally ignorant but more financially secure. At one time or another I’ve listened to:
…a woman that spends $12 a gallon every morning for her cup of Starbucks ranting about big-oil-profits.
…a man complaining about spending $80 to fill up his $50,000 SUV as he was showing me his new $2,000 HDTV.
…a retired couple complaining how much it cost to drive to and from Florida for their 3-month winter vacation where they play golf 3 times a week.
…a guy complaining how much it cost to fill up four snow mobiles for a family weekend.
…someone complaining about what it costs to drive to and from a summer home every weekend.
All of these people, as far as I could tell, seem to live within their means. But none of them advocate free-market solutions, less taxes and regulation, off-shore or ANWR drilling. It’s all about evil, greedy “big-oil”. Get the government to “get” the oil companies so the price comes down. This way they’ll have more money to play and buy toys.
Then there’s those who live beyond their means. Every toy and gadget in the world. Gym memberships. Vacations. New cars. (I know a couple that’s been in bankruptcy three times that has a new car every time I see them.) Multiple credit cards maxed out. Naturally, many of these folks rant about the evil, greedy credit card companies. These are the truly clueless.
Then there’s those who took out mortgages they couldn’t begin to afford and now it’s someone else’s fault that they’re losing their home. But that’s another discussion.
Sorry, but I have a problem with expensive gasoline and greedy execs at oil companies. It may not be popular here, but there is no way a commodity business exec should pull in $100M or more. They are running in an oligopoly, not a truly competitive business.
They are pigs at the trough.
And a darn fine rant it is.
Some will say that the oil business is not competitive. It is, and in ways most don’t even know about.
By shares in Prudhoe Bay Royalty Trust and as the price of oil goes up, so do your royalties. ..... No problem
2 questions for you?
If someone offerd you $100 million to do your job, would you take it, yes or no?
Why haven't you been offered the CEO position at a major oil company?
And I also believe that a barrel of oil only produces approximately 19 gallons of gasoline. How that affects your cyphering, I can't say.
That portion of your rant was correct but that is where it ended.
The 42 gallon barrel of crude yields about 20 gallons of gasoline.
The U.S. average for Federal and State taxes on a gallon of gas is 46.9 cents.
By the way, I forgot to say in my last response that your point is taken and agreed on.
I guessed at the 95% yielding 40 gallons. If it’s only 19 or 20, then the cost per gallon to produce is higher, profit margin has to be lower. Of course, selling the by products figures in....the point of the rant doesn’t change.
Agreed. Just pickin' nits.
Also, how much of the earnings goes into paying salaries/wages for everyone from tool pushers to engineers to execs (including benefits for all of those employees). Cost of infrastructure maintenance and upgrades?
The gross profit margin for a gallon of gas in America today, is what it has always been, on average, .08 cents per gallon, (2.5% at $3.00 per gallon). Though retail gas prices fluctuate with crude prices and supply vs. demand, the gross profit margin per gallon remains roughly the same at all times.
Gasoline Retailer $.01 cents per gallon
Oil Company $.08 cents per gallon
Refining $.29 cents per gallon
Marketing/Distribution $.32 cents per gallon
Taxes $.59 cents per gallon
Cost of crude $1.71 per gallon (delivered)
IMHO, expensive gasoline will just tend to keep the amateurs off the road. I’ll believe the hurting when I see all the drones start car-pooling like back in the ‘74 timeframe.
Interesting. What effect do exchange rates have on this model, given most of our oil comes from Canada & south of the border?
We still have some pretty low gas prices compared to other countries. The Brits laugh at us complaining about our prices.
What really bothers me is when the price per barrel goes up and we see a price change at the pump instantly for oil that was bought ,refined and delivered months ago at a lower cost. When the crude price goes down we don’t see the pump prices drop because they use the excuse of the gas here now was made with oil bought months ago at a higher price.
That is a common perception and often voiced on this BBS. However, it does not appear accurate according to actual data.
Number one, the price of oil, base for gasoline, affects almost everything else, from plastics, to food, to the clothes on your back.
Number 2, The price for oil is dependent on people that, according to their religion, want to kill most of us.
So, no, even when we understand the price of oil, and the oil companies make about 10% profit which is not that big a deal, we will not stop whining about it.
Sorry, but your questions are ridiculous.
As a shareholder (which I assume you are), nobody should be in favor of such egregious amounts of pay unless value is truly being created on a huge scale. A stock which goes up 10-15% certainly does not qualify.
If you have no problem having EPS diluted from your shares, that is fine. I do not feel the same way.
Just today people were outraged about a 20 cent per bag tax for grocery stores. What these guys are taking is much more than that, and yet people like you are perfectly content to let them take more.
I just don’t get it.
Additionally, I don’t drive an $80k SUV and I drink instant coffee. Therefore, I can bitch.
Re: We still have some pretty low gas prices compared to other countries.
We also have much longer commutes.
Saw Wonder bread for $4 last week. Thought it might be a pricing error, so looked again this week and it was still $4 and so were all the designer breads. The store brand was 99 cents. Have no idea why the difference.
Part of the difference could be that many stores are now baking and selling their bread on the premises.
Short of that, the store brand is probably delivered along with all the other store brand stuff by the store's own vehicles.
The designer brands are delivered by the brand's trucks and the transportation cost can't be split with other foodstuffs.
Not saying that either of these is correct, just speculating.
If I ever see somebody around there who might know I would ask. Some aisles seem to have permanent staff or contractors, but bread is just there and nobody around but shocked retirees.
Win/win either way.
Smart, huh?
Read this, take two aspirins and call me in the morning.
Also, the Government got 4 to 1 “windfall taxes” to oil profits. 4 to 1. Better make that three aspirins. Later...
Can anyone explain why companies (ANY COMPANY!) making $11 Billion per quarter should get tax breaks?
Please.
Anyone.
Point taken. Perhaps I should have commented on the misdirected whining. People should b & moan to the government that’s causing the problem by restricting supply. The US has oceans of oil in Alaska, the gulf, off-shore, and I’ve Been hearing of a huge field in North Dakota. Most of it off-limits to production due to the losers in Congress. Those who whine, and vote the same jerks back into office should keep quiet.
I forgot to add. If you have a point to make, make it. Don’t expect me to read URL’s you post.
I’ve been riding a van pool since 1990 when I moved about 35 miles away from my work. The first two years, I paid $10.00 per month.
I got my own van in 1992 when we went to a 4 day - 10 hour workweek as a van pool driver. I haven’t paid for fuel or a van pass since I became a driver.
Corporations should not pay income taxes. The idea is that the customers already pay taxes so it is double taxation and the corporations just pass the taxes along anyway.
Flour prices increase by well over 30 %,check out the cost of a 5lb bag of flour on the shelf.
Flour contracts of the big bakeries will usually dictate when they will raise their prices. When the old contacts run out - prices increase.
Most Store brands- in the bread aisle, are made by the commercial bakeries, if Wonderbread is next to the store brand on the shelf, dollars to donuts they are making it and they are delivering it to each store too. Some stores also receive their labeled bread by distribution centers. But they will come from a local commercial bakery like Wonder.
Store brands don’t rely on heavy marketing to sell, price is lower, the cost of getting it on the shelf is less.
The cost of baking off at store level is very high, personnel salaries, etc. but lately their prices are comparable to commercial goods. That too will change.
Food for Fuel is a stupid concept indeed.
Thanks - I’m with you, brother.
Exxon's new corporate slogan?
We get an oil man in the White House and we get an oil bubble. Go figure.
To think I deleted my comment that ‘you deserve a break because you are from PA’ I felt a little rude.
Not anymore Haus!
Are you advocating some sort of government regulation of executive salaries? Do you expect companies to sell their product at less than market prices so as to be not greedy?
If you worked your way to the top of an oil company, would you be clamoring to be paid less money? Call me greedy, but I wouldn’t.
A fine rant. I completely agree.
Moreover, I keep hearing people whine about how gas “costs too much”. Well, no, obviously it does not. It costs what people are willing to pay. Otherwise, traffic congestion would be improving. It isn’t.
Sure, it would be nice if it was cheaper. It would also be nice if the boat I want would cost less. It would be nice if I could get a new Harley for a couple thousand bucks. It would be nice if a gorgeous blonde named Inga was giving me a massage right now. Lots of things would be nice.
Demand for gas is going up. It’s really that simple. I’m not even yet in the camp that thinks we should necessarily be tapping more of our reserves to keep up with demand. Maybe some. But I don’t get any heartburn about burning up our enemies’ oil first. They’re going to get rich from it anyway, and if we use up theirs first we’ll have it for later when it gets *really* scarce. Doesn’t bother me at all.
Hmmm... thanks Inga. I feel much better now. :-)
That’s just a coincidence/sarc
We’re in a kind of special situation in Fairbanks. Everything is freighted in and we are a long ways from any factory source. Even the store brand arrives frozen. What passes for fresh is simply freshly thawed and sometimes not even thawed. Probably the nearest factory is in Seattle.
This is just one fact in that pesky URL you seem to think is above your reading requirements.
No.
How about simply letting the owners vote on the huge pay packages?
If I am part owner of a pizza shop I should have a say in what the people make, right?
Why is it any different with corporations?
Now nobody offered you $100-million to be the CEO of Mobil because no one thinks you’re worth 100 mil. You’re worth whatever someone is willing to pay you. Same as these guys. Supply and demand applies to people too. Apparently, these guys are worth it as far as the people paying them are concerned. Now of you want to argue the company is in the toilet and heading for oblivion (see Detroit, auto industry) and the senior execs are still raking in millions, then I agree with you. You run your company into the ground, you should be fired.
Now I don’t disagree with your shareholder comments. I’d love my shares to double every year and my dividend to skyrocket. And I’m not necessarily in favor of such large amounts of pay. But if I don’t like it, I can sell my shares, at the best price I can or the price I want (see again supply and demand). But this is another reality check. The big-time investors with a couple of percent or institutional investors with millions of shares and big percentages are the guys running the team. They don’t like what the coach is doing, or think he’s paid to much for how well he’s performing – get rid of him. As for me with my infinitesimal percentage of outstanding shares, I’m just the guy in the cheap seats cheering or jeering at whats going on. If I think it really sux, I go home.
One cannot compare what they paid in taxes with their earnings. You look at what they grossed.
Because they can?
First of all, there's no such thing as a bad tax break. Any money not in the hands of government is a better use of money. Always.
Second of all, that money instead of being poured into the rathole of government is being spent on development of new sources and methods for everything from additional oil reserves, to new technologies and whole new ideas for energy.
The more money they make, the better off we are. Just think of the looming disaster if the energy sector was ~not~ profitable. No... we NEED them to be making money hand over fist. That's where the next century of energy is going to come from.
Re: First of all, there’s no such thing as a bad tax break. Any money not in the hands of government is a better use of money. Always.
Not if it’s coming out of my pocket!
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