Running on Empty(Gas stations stop selling fuel)

milwaukee journal sentinel ^ | May 23, 2007 | THOMAS CONTENT

[kellynla]

"Sad fact is the distributors are trying to charge $3.44 a gallon while the spot price is $2.2288 per gallon (NY Harbor, 5/22/07). Federal gas tax is $.184 and Wisconsin is what, $.329? That adds up to $2.74. Even at the worst spot prices this past month, you’re looking at about $3.06.So even if the spot price dropped to $.3003 per gallon as it was on Dec 24, 1998, they would be looking to charge the stations $1.63 a gallon. On 12/24/98, average prices were about $1.01 a gallon. In other words, someone (and not the station) is making a LOT more than they used to after the actual refining of gas. "

I'll have to pass this on to our resident expert, "thackney", who knows more about this subject than I.

[Kellis91789]

Nobody seems to mention the real constraining factor here.

What kept this station from making a profit wasn’t big oil or taxes or MasterCard. It was that Shell is charging him more than whoever is supplying the other station down the street.

Who is that ? Chevron ? Or a Shell-owned rather than franchisee station ? How can they afford to sell gas at a price this Shell owner can’t profitably match ?

Other articles have also mentioned Shell specifically, and franchisees specifically. As though Shell is trying to squeeze out the small operator and take direct control of the retail end.

[freeforall]

One can increase competition in the marketplace by lowering entrance costs through lower taxes and regulation, that is the key.

[thackney]

On 12/24/98, average prices were about $1.01 a gallon.

And what we got for those cheap prices then are the high prices today. There was no money to keep up much exploration, new drilling, expansions and capital improvements. The surplus margin fell so low that events like Katrina were devastating to available supply. And when the Asia economy picked back up the demand pushed up against the available supply. The result was:

Many oil companies were able to get by on those cheap prices. But they were not building for the future, and many others had to sell out stock or reserves or facilities just to survive. Several had to sell out all together.

The reality is those cheap prices were not cheap for us in the long run. Oil fields deplete, water cuts go up in time, H₂S tends to build up in some fields as they age and produced water is re-injected. If a company is not reworking wells, drilling, exploring and building facilities, oil production is going to decline after a few years.

Now the refineries are in the same boat as production. The last couple years there has been some expansions. In other countries a few new refineries are being built. Some really big expansions are in design right now, major equipment being specified and soon to be ordered, construction being planned. But this spring the US got caught. Margins were very tight, quite a few expansions/upgrades were being planned during the winter-to-spring switch so stocks were built up higher than normal. A few extra unplanned outages and a higher than expected demand resulted in:

Supply and Demand are still the biggest impact in this market. The good news is are those profit margins are still around 10%. In this time of high prices are lots of investment back into the industry. Dollars are pouring into exploration, expansions and new infrastructure.

There still is a lot of competition in this market. More than 60 different companies have US refineries, some little ones are still competing. A couple hundred companies produce oil, import oil or import refined product. If we had a government that didn't tie their hands by keeping resources unexplored, taking 7 years to get a permit to "start" a new refinery, a multitude of different gasoline blends so product is not available to move to a different area when a refinery is down, then our prices would be lower.

[Bloody Sam Roberts]

Hey...I’m all for smaller gubmint. Much smaller.

[goldstategop]

Most gas service station owners earn only pennies on the dollar. Most of it is gobbled up by government and then the oil company takes its cut. So its not a way to get rich. Its just hard work with little return on the investment.

Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus

[kellynla]

Thank you for the explanation.

[eraser2005]

That’s a lot of good information, and I don’t disagree with it at all.

But that doesn’t really explain why the spread between the nearest gas futures/spot and pump prices is so much greater now than it was in 98. I don’t disagree that prices in 98 were really too low to be good for the long run.