Fuel Price Inversion

It wasn't so long ago that we were complaining that the cost of diesel had shot up so much that it was more expensive than premium gas. Also how mucy more expensive fuel was in CA. Well I just filled up with diesel at the Pilot just NW of Sacramento for $2.899, just a couple of cents more than we paid at the Flying J in St. George, UT a couple of weeks earlier. Diesel was also about 40 cents cheaper than regular gas. These price swings make absolutely no sense to me.

Basically its RIPOFF of the public.  The news says gas prices will go up and the oil companies raise prices accordingly. 

It's those D%^n idiots bidding on the futures. Someone needs to cut their hands off. Every time some arab burps they bid up the price of crude. That and the mental retards in congress that won't allow drilling on our own property or wont approve more refineries. We're already 12 years behind the curve on that account.

Speaking of gas prices....

I have a ten year old Honda Accord.  I generally let it get pretty low on gas before I fill up.  In the first seven years that I owned it I never once paid more than $19+ to fill up.  Three years ago this month I broke the $20 mark for the first time.  This morning I spent $45 for less than 14 gallons of regular to fill up.  This is craziness.  The great American ripoff.

Someone has to pay for the EXXON Valdez expenses  and you know it won't be them.

Geeeez....I wish people would quit bashing Exxon and all the other oil companies for the high price of gas/diesel. It?s a shame that most people can?t realize that the price of crude oil is dictated by futures trading and is driven primarily by our addiction to gasoline. It is as simple as the economics of supply and demand.

Let?s look at a breakdown of a barrel crude oil. One barrel of Crude oil is 42 gallons. If the price of Crude is $65 per barrel, that is $1.54 per gallon. Just because you have 42 gallons of crude doesn?t mean you have 42 gallons of gasoline. You have to refine the crude oil into its various components. Aside from basic distillation you can change the molecular structure with chemical reactions, heat and/or pressure. Even after all that only 40-52% of the crude Oil becomes gasoline, 15-20% diesel, and 10% jet fuel. The rest becomes fuel oil, lube oils, asphalt, LPG, etc. Not all crudes are the same; many refineries are designed to run specific types of crude from various regions of the world. For a refinery to be able to switch the type of crude it refines might require extensive modification of its process equipment at a cost of 10s of millions of dollars. (Sweet and Sour Crudes would be a good example of this but that is way oversimplified as there are literally 100s of crude types and blends.) Also, there are some crude type from which you can only refine 40% to gasoline and others that might produce 55%.

Please consider these costs of bringing gasoline to the pump (none of which are cheap):

1) Geological research. Finding the oil. Leasing the land.
2) Getting the oil out of the ground. Not just drilling for the oil but also building an infrastructure to get the oil from the well head to a transportation network.
3) Getting the oil to the refinery. Unfortunately, few if any refineries in the USA are right next to the source of the crude. Crude will need to be transported to the refineries primarily via pipelines. If you buying crude from Saudi Arabia, it?s along boat trip to a dock in the USA and then, perhaps, another few hundred miles to the refinery via pipeline (not necessarily Exxon?s pipeline so there might be a tariff involved). (BTW, Drill rigs are very expensive. there are some in the Gulf of Mexico that cost over $2 billion.)
4) Then there is Refining. I have already covered that.
5) Once it is refined into the various component parts you need to send it to market, a distribution facility. Product pipelines are the main mode of transport (a whole different pipeline network from crude pipelines). Depending on the product and the destination, products are sometimes bulk shipped by tanker truck or railcar.
6) At the distribution facility the gas/diesel/jet fuel is delivered by tanker truck to the final destination.... the gas station.
7) Does the gas station owner get to make some money? What is his markup? Some gas stations are independently owned and some are owned by the oil company. All cost money to own and operate.
8.) Then there is the government. Between federal ($.18.4/gallon for gas, $.244 for diesel) and state taxes you could be paying as much as $.62 per gallon of gas in taxes. (Please note that Exxon also pays extensive property taxes (on their assets) and federal taxes on profits.)

Oh, (tongue in cheek here) are we going to allow Exxon to make a profit? Is 5% too much? Hmmmm....they will have to pay state and federal taxes on that. Maybe they would be better off investing their money in the stock market or put it in a bank and draw interest. They could get the same return on their investment with out all the risk and hassle. But wait, where then would we invest our money if not Exxon. Perhaps I should be the one to blame, I have invested in Exxon (I own their stock). They pay a pretty good dividend (3-4% yearly) and the market drives the price up fairly consistently. It must be my fault.

What does everybody think Exxon does with those outrageous profits? Pay taxes to the US government? Reinvest in finding more oil and alternative sources of energy? Does anybody believe that board members split the profits up amongst themselves or put it in the bank for a rainy day?

And lastly, what about our wishy-washy government? Too many laws to restrict oil exploration, drilling, transportation, and refining.  If someone hasn?t notice yet all the international oil companies are going/investing overseas where the labor is cheaper and the governments are friendlier with their money and laws. I work in the oil industry and have seen too much of this the last 10 years. As Americans we want to have our cake and eat it too. We want to tell the oil companies where they can and cannot drill for oil. Where they can and cannot build a refinery or chemical plant. We want to tell them how much they can charge for a gallon of gas and how much profit they can make. Not a very attractive oil business environment for a country that is addicted to oil!

Sorry for the long rant....this has been building up for a long time.  ;D

You don't see me bashing Exxon, but I'm sure not going to get out my towel and cry for them.

BTW no need to apologize for your post.

Sorry hleap, you had my sympathy for a while and then I remembered the billions of dollars profit Exxon et al have made in the past year.  But I do agree about the restrictions on drilling.

hleap said:

Geeeez....I wish people would quit bashing Exxon and all the other oil companies for the high price of gas/diesel. It?s a shame that most people can?t realize that the price of crude oil is dictated by futures trading and is driven primarily by our addiction to gasoline. It is as simple as the economics of supply and demand. ...

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Seems like I read in the Wall Street Journal just this week that the refiners were making $30 profit on each barrel of oil they got.

Well I for one never buy Exxon and hope I never do 

I'm not asking for any sympathy for the oil companies. I certainly don't like paying $3 a gallon either. I just don't like to see them being battered about for being profitable. Most of their revenue/profits were based on exploration and reserves they discovered many years ago. They have developed many new technologies for squeezing oil from fields that for years were classified as "dried up". They did thier homework. America is all about free enterprise. Free enterprise is all about profit. What would we have Exxon do? Sell all its reserves at say $20 per barrel when Aramco, Royal Deutsch Shell, Citgo, and BP are selling at $65. Sure, gas prices would be lower temporarily but once Exxons reserves were gone we would be at the mercy of OPEC and guys like Chavez. Remember we can only control Exxon somewhat because it is an American company. What would we do about the profits all the others (foreign companies) are making? .  Exxon is a prime targets because it is the biggest of the oil companies.

We should take the responsibility on ourselves for reducing our dependence on oil. Its just like a diet, first you have got to start eating so much. I guess if the prices get too high for me I will have to buy a more economical vehicle (Prius) so I can afford the diesel for my motorhome.

Howard

I think I'm gonna cry...........

Shayne.... You probably have Exxon gas in you car(s) right now. And as much as I hate to think about it Citgo too (especially if you buy in Lousianna). Just because you buy at a Shell station doesn't mean it is Shell produced gasoline. Same goes for all gas stations, they get/buy their gas from a distribution ceneter that could be run and supplied by almost any of the major oil companies. That goes for Cheveron too. The only thing special about Chevron gas is techrolon and that is added/mixed at the tanker truck before it is delivered to the station.

Frank...is that gross profit or net profit? I could believe gross profit.

Oh and BTW.... I would prefer to buy my gas/diesel from Exxon. It is an American company. I would rather have my money stay here in the US than go to the Hague (Shell), Citgo (Chavez), Aramco (Saudi Arabia), BP (Great Britian) etc., etc. 

Good discussion eh?

Too each his own  Nope  not La,  but AZ and as long as I don't know it's Exxon  it's fine with me  but if I know that I will past on it.  Exxon has been controlling prices for too many years to suit me and that's my opinion and I'll stick with it.  If you want to support them that is your business.  Besides there isn't as much oil coming from over there as you might think.  But that's up to me to spend where I desire and you likewise.  They just present more graft then I like. 

hleap said:

Geeeez....I wish people would quit bashing Exxon and all the other oil companies for the high price of gas/diesel. It?s a shame that most people can?t realize that the price of crude oil is dictated by futures trading and is driven primarily by our addiction to gasoline. It is as simple as the economics of supply and demand.

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You are wrong, the price of fuel is driven by "What the market will bear" or, in other terms, "How deep can we gouge them"

If your statements were true the oil companies would not break profit records quarter after quarter after quarter as they have been doing for some years now.

As consumers we simply do not feel that we should be oiling the pockets of the robber barons who run the oil industry and it's for sure we feel that the oil can harry's in the white house are not strongly inclined to do anything about it.

The oil companies can show the price of a gallon at the pump has followed the price of opec oil, of course nation wide something like 2 percent of the gas in the pump is OPEC, 80 percent of our imports comes from Canada, and the lion's share is domestic.

It is very simply a rip off,  And what's worse it's government approved rip off.

The oil companies can show the price of a gallon at the pump has followed the price of opec oil, of course nation wide something like 2 percent of the gas in the pump is OPEC, 80 percent of our imports comes from Canada, and the lion's share is domestic.

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The market for petroleum is a world wide market.  Oil is fungible to a great extent.  That tanker full of oil heading towards North America can be sold most anywhere and may even be bought and sold in transit.  It does not matter whether it is Saudi, Iranian, or Venezuelan.  As long as we import any oil, we pay the world price plus the price of refining.  Let me tell you, the Canadians are not going to peddle their oil for a dime less than world price.

Even motor fuel, the refined product, has a world market.  For example, Iran is a net exporter of crude oil, but it is a big time importer of gasoline.  To hold down the price of motor fuel, the Iranian government subsidizes it heavily -- with the profits from crude oil production. 

By the way, your local filling station must price his fuel not on the price he paid for it, but on the price he must pay to replace it -- or go broke quickly.  In a sense, dealers are in the futures market.

$30 profit per Barrel?    Lets see, the US uses approximately 20 million barrels per day,  that would mean $600 million profit per day, $219 billion per year, or $54.75 billion per quarter.  What was Exxon's big record breaker? A $6 billion quarter, more or less.  There are two reasons for record breaking profits...  ever increasing energy use and inflation.  If the Oil companies were raking in huge profits, wouldn't their stock soar?
Art

According to the latest stats (March 2007) US consumption of oil is approximately 20,700,000 barrels per day.  Oil imports make up 10,348,000 barrels per day and 5,744,000 barrels per day of the imports are from OPEC nations. That?s more like about 28% of our daily oil coming from OPEC. We get 1,776,000 barrels per day from Canada, that?s about 8.5%. About 50% of our oil comes from domestic sources, a slight majority and yet if continue to use Oil at that rate and don?t develop any new sources we will be out of Oil in 7 or so years. Our current reserves are 22 billion barrels of oil. The numbers are all there, all you need do is Google them.

I am NOT saying the oil companies are squeaky clean. But I am saying it costs money to find the oil, refine it and bring the product to the pump. So many people talk as though it?s pumped out of the ground and into your car.... no effort or expense involved. Last Winter BP and Devon announced a big find in the Gulf of Mexico. Billions of barrels of Oil in deep water. Their stock soared 10-15% that day. The next day it came out that it was going to be hard to get, the stock prices went back down. That?s just one of the problems, we have taken all the easy oil in the US. The rest will be hard, like the oil shale fields in Texas, the oil sands in Colorado, the north slope of Alaska, or in the deep water of the Gulf.

Actually I am in favor of high oil prices. When the price of crude is high it makes it lucrative to find new ways of squeezing that last drop of oil out of the ground. We get creative and resourceful. We will be motivated to find alternative sources of energy because, guess what, there will be big money involved as a reward. Being creative and inventive, now there?s something we as a nation need don't you think?

Also, personally, I am a big fan of buying all we can from the Arabs. Run them out of oil, use theirs first. And for gosh sakes don?t sell, lend, or show them our technology. We need to start protecting our own interests! ;D

Howard

Please, if you quote statistics give sources (like verifiable URLs) to back them up.  Anything else is just conjecture.