WHAT, IN THIS wacky world of ours, has happened to gasoline prices?

Throughout Europe, gasoline, or "petrol" as our friends over there call it, has always been pricey, but that was because those governments levied incredibly high taxes on every gallon--oops, I mean liter--sold at the pumps.

Here in America, depending upon how big a piece of the pie your state and local governments fancy for themselves, the overall taxes are far more reasonable, running somewhere around 40 cents a gallon, and that includes both the state and federal charges.

Every day, we keep hearing about the escalating cost of a barrel of crude oil. Last week, the headline in the business section of one newspaper read, "Oil prices near $67 a barrel."

Who knows? By the time you read this, that might be a bargain.

What exactly does it mean? Do you know how many gallons of gasoline come out of one "barrel" of crude oil? (Pretending they really even used barrels today like the wineries and whiskey distilleries actually do.)

Still, would that number be 20? 50? 100?

I looked it up. There are exactly 42 gallons of crude oil in any one of those standard "barrels" the pretty faces on the television keep talking about every night.

Here's a surprise: Once those 42 gallons go through the refinery to be made into regular, high test, airplane fuel, lubricants, tar for the highways and plenty of more oil-based products, it turns out the refinery gets a "processing gain" because of some stuff that's added to the blend.

In the end, a single barrel of oil that came out of the ground actually yields almost 48.5 gallons of product we can put into our gas tanks. Mix in a little ethanol, and you'd get even more.

Let's say crude oil hits $70 a barrel and the refinery turns it all into gasoline. If you divide 48.5 into $70, that comes to the raw material of gasoline costing about $1.45 per gallon.

I paid $2.35 a gallon at the pump the last time we filled up.

Take away the 40 cents for taxes gone into the government's pocket, and that leaves a tidy 50-cent profit on every gallon.

Surely there are costs to refine the crude, delivery charges, paying the salaries of the station attendants and plethora of other expenses to finally get that Saudi Arabian crude into your Honda's gasoline tank, but does it all really come to 50 cents on every gallon?

It cost me $49.87 to go from empty to full last Thursday, and I almost cried. So far, that number sets the record.

Maybe instead of just those paper towels some gas stations provide near the pumps to clean windshields, they also ought to start furnishing Kleenex for whoever is going to be paying the bill.

I had a lot of errands to run that Thursday, and when I returned home in the evening, my gas gauge was reading just a hair over half-full.

It might be wise to start keeping a good supply of tissues in my truck, for that was another heartbreaking moment when I noticed how much gasoline was burned.

I'd really like to know into whose pocket my $50 for a single tank of gasoline eventually fell.

It would also be pretty interesting to accurately understand why the price for a barrel of crude has been rising faster lately than the heat index in Kuwait City.

Back in the 1970s, when the shah of Iran was thrown out of his own country, there was a real concern for the world's oil markets. We really did have a plausible explanation then for the rising fuel costs.

When the petroleum-producing countries got together to keep the supplies low and prices high, Americans all paid more at the pump for those oil producers' newly found camaraderie plus their creative organizational and business skills.

What exactly is causing it today?

Nobody seems to have the answer to that question, and I think it's an important inquiry.

Is someone doing this to us just because they can? Who is that "someone?" Could it be a small group of oil company executives that's responsible? Just who is getting so rich and where is all our gasoline money eventually going?

Wouldn't you like to know if it's some Venezuelan oil baron or the managers at the head of Exxon and Citgo or perhaps it's just the CEO at Wawa that's bumping prices up into the stratosphere?

Have you read lately what the "experts" have to say?

According to one newspaper account, the "threat of hurricanes" is a basis for increased oil prices as is the "Iran issue," wherein that country is resuming its uranium conversion activities.

That's causing me to pay $50 today for a fill-up?

I read one report of a "refinery outage" at a 306,000-barrel-a-day refinery in Wood River, Ill., brought about by a thunderstorm that also could be a factor, too, in escalating prices.

That's crazy. Just flip some switches, plug that bad boy back in, and let's keep the oil flowing.

If a caribou herd is spotted near the Alaskan pipeline anytime soon, will that drive up both oil and meat costs?

Here's a plan. Beginning today, I'm going to start treating the halfway mark on my truck's gasoline gauge as the empty point. That way, the shock of these ghastly gasoline charges will be tempered a bit, for I'll be buying only half as much each time.

Sure, at the end of the month, the damage to my finances will still be the same, but, at least, the misery at the pump during each fill-up won't be so bad.

I really believe the gas prices are so exorbitant today because somebody figured out they could get away with gouging the American public, and all our elected politicians in Washington are looking the other way and letting it happen.

Those guys in Congress are all mostly millionaires anyway; do you think they care if it's $45 or $145 to fill up their limos? Some lobbyist is probably paying that bill for them anyway.

Is this a great country or what?

JIM KUNDRESKAS of Louisa County near Lake Anna has been an outdoors writer for more than 20 years. Contact him at [email protected].

I would love to know the answer to this too, I think ours is $2.70 here right now. It's going to keep on until people can't afford to drive to work. Then what?

Maybe this lettle note should be sent to all in public service! Not that they can do anything, I beginning to think they just sit there and suck in the money.. I got up on the wrong side of the bed this morning and this a big sour spot with me. The shortage they talked about long ago, we never had and we still bought gas, so they just kept rising it!

*&^%$$&&**&^%$$

:o(

All I can say is thank God our president recently gave big tax breaks to the oil companies. They need to shield their record profits from the tax man. Prices should be coming down soon.

remember when the big cry was, "ok, charge a buck a gallon, just open the damn pumps." (1973 or thereabouts)

you ain't seen nothin yet.

the rapture coming will not be what the christians envision, it will be madam defarges knitting away in quiet corners, waiting for the moment.

How much gas do you guys use? I use 50 to 75 gallons a week. In the last ten years the rest of my costs have gone up much more then gas.

It's really easy and rather simplistic to blame "big" something for everything. If it isn't big oil it the big drug companies etc etc. And yet everyone wants, no expects' that what they do should be profitable.

Wagner, did you get to be the big business typhoon that you are by not making a profit or keeping the company you were working for from making one? Your bank never forclose on an old widdow woman with kids?

Oil is a commodity. That means its value is based on something called supply and demand. Watch trading places with Eddie Murphy sometime for a brief tutorial. The only way to lower the price is to raise the supply (like drill in Anwar) or lower the demand.

As for Bush giving oil companies big tax cuts, He did by himself by executive order? When he gave everyone a tax cut did you send yours back Wags? Every business wants to maximize profits. I think it's rather hypocritical of people to single out others businesses for seeking profits when we are all doing it.

"...In the last ten years the rest of my costs have gone up much more then gas. " -rugrunner

Rug, consider this. If the cost of labor doesn't keep up with fuel costs employees can't afford to go to work, and will just quit, the cost of materials include the cost of fuel to deliver them to market. The cost of labor also has to include enough to get the worker past the same jumps in cost for a loaf of bread, (gas to run the combines, gas to haul the wheat to the mill, the energy to run the mil, the energy to bake the bread, and the fuel to deliver the bread to the store!) Of course all the other costs outpace the fuel, but the fuel bill is much of what drives the entire inflationary trend!

CW, nice to see you in a position to post! Thank you for your service!

I agree that fuel prices affect the price of everything! What I meant to point out(and seemingly failed to do so) is that the current price increases

in gas have not yet affected most other prices. So most people bitching about the cost are only upset that the cost of filling their car has gone up.

I make allowances for fuel costs in my business. If it goes to four bucks I can afford it. I might not be able to afford the cost increase of everything else but I could pay for my gas. If they drive 10 0r 20 miles a day in a car getting 20 miles a gallon, they are spending an extra 50 cents a day. If they are on that close of a budget they need help!

Here's a copy from my last conversation on another board, I'm tired of writing novels to help others understand whats going on(no offense to anybody here).

Quote from another person-

I think a lot of the pricing simply doesn't make sense... even if crude goes up 20%, the price of gasoline should not, especially considering fixed taxes, overhead, and such...

Reply-

In the past 10 years the price of Crude has gone up 297%, the price at the pump has only gone up 116%. Which is exactly what one would expect to see. In fact it's actually better than one would expect, indicative of the fact that Big Oil has been successful in absorbing some of the rising crude costs by cutting internal costs.

QUOTE

Also with oil prices so high, there should be a huge boom in oil exploration, because the price is so far above normal costs.

Prices are high, margins are not.

ConocoPhillips -- 7.7% margin last year

Exxon-Mobile -- 10.10% margin last year

ChevronTexaco -- 8.1% margin last year

None of those are remarkably exceptional.

We are seeing an increase in oil exploration and other research being done though. Exxon-Mobil's, BP's Exploration and R&D budget for one is absolutely gigantic.

In the 80's and 90's oil companies weren't doing so well. They were absorbing too much of the rising fuel costs without passing it on to the consumer and were having a difficult time cutting costs with the signifcant amount of overhead required. Hence why we saw the mergers in the late '90s which allowed cost-cutting measured, increased margins, and finally significant sums of money were able to be thrown into research and exploration.

QUOTE

Do you guys think that could be a factor, if someone knows you need something, they can adjust the prices to further profit perhaps?

As mentioned above, the profit margins on gasoline are not that large. Only 18 to 25 cents of a gallon is profit. Not a great deal. Gas went up here locally 18 cents just last week alone.

Yes, margins have increased slightly over the past 5 years. But that's soley from the amount of overhead that's been consolidated as a result of the mega-mergers and the resulting cost-cutting measures. Not because they've been ripping people off. Besides, we're talking margin increases of only a couple pennies a gallon.

QUOTE

However, there should be a requirement that oil companies compete at a refinery level, where each firm supplies its own stations from its own refinery... so the wholesale price isn't set by a single firm...

The national gas distribution network is not setup to function that way. All stations buy from a central pipeline in which they dump fuel. They dump 250,000 gallons in, they can take 250,000 gallons out -- it just won't be the same 250,000 gallons they put in. Every company using their own gas simply couldn't be done without hundreds of billions in investment and decades of laying new pipelines.

Here's more when people blame Big oil and their profits.....

Exxon - 295.7B revenue, 134.49B gross profit (45.5% gross profit - yeah the rise in crude is really hurting them badly), quarterly rev growth 26.2%

BP - quarterly rev growth 25.3%

Conoco Phillips - quarterly rev growth 32.6%

Gross margin isn't a measure of anything. It's simple Revenue minus Cost of Goods Sold. It doesn't take into account any costs related to transportation of the crude, refining of the crude, transporting the refined product, marketing the refined product, pumping the refined product, and the tens of billions in finding and drilling for more crude.

Lots of companies have huge gross margins because the actual raw material cost of the good is a small portion of the actual costs involved in production. Software companies, for example, have HUGE gross margins because the actual cost of the CD and packaging is pennies compared to the hundreds of dollars software could sell for. Software companies run gross margins in the 90%+ range. But it doesnt' take into account the actual costs to produce that good.

Do you know what the average gross margin is of every single company in the S&P500? 47.2%.

Know what the gross margin is of every company in the entire Oil Industry? 27.9%. I beleive that makes it the lowest gross margin industry on the stock market.

Net margin is the important number. No one cares about gross numbers in business. Net margin is revenue minus all costs related to production. And the net margin of Big Oil is not that great.

Think about it -- Big Oil is making a 7 to 10% net margin. I make that kind of money on my 401(k) (actually better than that). That is not the measure of a good company. The entire oil industry is only slightly above the average of all S&P500 companies in net margin. Anything 6% or lower is not good at all -- at that point a company is better off taking their profits and investing them into the stock market than they are investing that money in their own business. Ford, a junk-bond status company mind you, managed to net a 3% net margin last year. And people think 7% is gouging? I can find hundreds of Fortune 1000 companies with net margins in the 20s.

Take railroads. An industry I'm very familiar with. Railroads are one of the oldest, most stagnant, slowest-growing industries in the nation and probably the industry most significantly hit by rising fuel costs. Yet despite that, here's what the 4 major railroads in the US did last quarter -- Norfolk Southern profit up 67%, CSX Railway up 38%, Union Pacific up 47%, BNSF Railway up 47%.

Railroads are doing even better than Big Oil! Probably the industry hardest hit by rising fuel costs and look at their profits . Many parts of our economy are doing very good. The numbers posted by Big Oil are not out of line.

QUOTE

The list of large companies with >25% quarterly revenue growth is small. Really small. Big oil has been holding that pace for quite some time now.

The list of companies whose sole raw material (virtually) has increased in price 25% a quarter is really small too.

The revenues of Big Oil are staggering. The actual profit dollars of Big Oil is staggering and growing very quickly. The profit margins of Big Oil are not particularly impressive and aren't growing at a rapid pace.

In another Forum someone suggested that the Government should regulate the Oil industry like we do Utilities in this nation. That regulating them like we do Utilities would apparently protect us from the massive price gouging ( :rolleyes: ) of Big Oil.

Well here's the profit margins of the largest Utilties:

TXU -- 8.9% margin last year (and it was a bad year, this year is much better)

American Electric -- 10.70% margin last year

Duke Energy -- 8.7% margin last year (bad year, this year is much better)

Pacific Gas & Electric -- 14.70% margin last year

Southern Company -- 12.80% margin last year

PPL Corp -- 11.10% margin last year

Almost every single Utility I could find makes a better margin than Big Oil.

...a lot of good points made here...

Especially the fact that the high price of oil and gas hasn't fully trickled into the costs of all goods and services but this is what everyone is waiting for.

The price of oil and gas is high because demand from a number of strong economies is high plus there is uncertainty speculation. The price can and will push the economies to the point where they grind to a halt. Then the demand for oil and gas crashes, prices fall and we repeat the process.

The only missing answer is how high can oil prices (and all their derivative products) go before the US and Chinese economies crash since those two economies are driving the whole world right now. Maybe it is $4/gallon of gas in the United States.

As for big oil companies, they really aren't quite as evil as everyone likes to make them out to be and all the information is public record if people want to find out. It is easier to blame big oil than it is to dig around a bit.

Here is a tale of four companies and their second quarter 2005 revenue and profit.

Company One:

Made $2.8 Billion on revenue of $76.8 Billion.

That totals out to be 3.64% profit.

Company Two:

Made $7.64 Billion on revenue of $88.57 Billion.

That totals out to be 8.62% profit.

Company Three:

Made $4.65 Billion on revenue of $41.56 Billion.

That totals out to be 11.19% profit.

Company Four:

Made $5.07 Billion on revenue of $20.17 Billion

That totals out to be 25.13% profit.

Now I understand Wagner's concerns with the recent energy bill considering the perception of obscene oil profits these days. I also recall Wagner is a big-time banker so here is a little challenge.

Of the four companies I just outlined, which one's profits are fair, acceptable, obscene, criminal, or disgusting? Where does your business' profits stack up in comparison to these percentages on the evil scale?

OK, OK. Everybody smells a rat here. The one that didn't make much money is the oil company right?

OK, I'll tell you who the companies are before anyone has to pass judgement on their profits but, then feel free to pass judgement.

Company One: Walmart (Low prices always!)

Company Two: ExxonMobil (Biggest oil company of them all!)

Company Three: General Electric

Conpany Four: Citigroup

O3Screw, you don't have to take the test. You've already figured out the answers!

All that for all that...

Some very perceptive reasoning going on in this thread. Someone answer this then. Why on earth would our government pass an energy bill that did not address the rising costs?

Ok, I'll try...

Because they know all too well that the VAST MAJORITY of American people will continue to spend WHATEVER IT COSTS at the pump, regardless of the price per gallon. We have in the past, and we're not gonna change.

Thank God I drive a company van. It cost me $67 to fill it yesterday.

Hockeydad, as a racist nit from Poe Dunk, I claim an exemption from the test, as it impossible for me to understand the question.

Rugrunner,

Just remember to fill up that gas tank. Might I recommend a Super Premium Unleaded Vintage 2005. It is a fine year!

Herfsnipe,

When I saw the energy bill, I was absolutely amazed that this was the same thing we had been hearing about for years that had been stuck in congress. I think the comprehensive energy bill is actually just a sick twisted joke from both political parties. Kinda a "let them eat cake" sort of bill. I think the bill did address rising costs in a "Hi, nice to meet you. I heard you were coming." sort of way!

Lets see... $12.3 Billion dollars on tax credits. Some to encourage drilling in hard to reach places, hybrid vehicles, wind power, nuclear power, better transmission lines. It is all nice. I guess I don't really expect the US government to solve the world's energy problems but this bill was 1700 pages long!

A week latter congress finds $286 Billion for the new highway bill!

The vast majority will continue to spend whatever it costs at the pump, and this is not just a United States issue. I'll admit I haven't done a single thing different as a result of the rising energy prices. It just hasn't hurt enough....yet.

Was the comment about Hockey an inside joke? Because his comments were well taken, along with those by 03screw.

I found the profits comments very interesting, as I had never bothered to look up that information.

Also, the comments about GE, Citicorp, Walmart, etc... verdict, guilty, as insinuated (guilty of "what?" is another discussion, which would include where money goes other than the profits statement, and individuals becoming obsenely wealthy). The only comment I would thow in, is, nearly all big publicly held corporations are guilty of the same, including the big oil companies.

The point here, I believe, is are the oil companies the root cause of the rapidly increasing gas prices. Many believe that we are on the downhill slope of fully consuming the worlds oil reserves, which means that in the long term, the supply can only go down, and we know that the demand is going up, so that spells increasing prices and inflation (unless we find an alternative source of energy, or become less dependent upon oil).

Maybe that came out wrong. I meant to say since i have been called these things i want to get out of the test! Not calling HD names!

Rugrunner,

No harm! I competely understood. You've been unfairly called a racist on other threads for speaking your mind.

An interesting comparison about the four companies is what do they do with profits. The oil industry as a whole has generally rolled those profits into dividends and stock buybacks that benefit shareholders like myself. Walmart uses their profits to move stores into more small towns, destroy mom and pop businesses, and enslave the people of the towns. (Wooh, sorry I got off track!) Many would like to see a little more of those oil profits go into new refineries and exploration. That is what the energy bill is trying to push.

If you really want to lose sleep at night, start Googling for "Peak Oil". That is the concept PMoreno349 is referring to with the decline of worldwide oil. Are the oil companies not reinvesting because they already know we're at peak oil? Can you recall the last time a major new oil field was found?

Here is my sample Comprehensive Energy Bill:

"On January 1, 2010, it will be illegal to import or export crude oil or oil derivative chemicals into the United States or any of its territories and possessions."

It is a nice simple one page document. You the citizens and corporations of the United States have five years to figure out how to replace the 50% of the nation's oil that we import each day. I guarantee my sample energy policy will change the nation!

Notice that what I targeted was foreign oil dependency, not cheap oil and gas. Today we want cheap. It is possible my plan could meet some resistance.

that was a lot to read. makes me furious, especially after paying $2.91 a gallon for 89octane...hmm...gotta love L.A.

Hockeydad, good. I insult enough people on purpose. I don't need credit for accidents. I like your energy bill but I think ten years would be better. No one would go for it. They all want to save the planet as long as it means someone else gives things up! It's the same with energy use.

An Interesting side note to the fuel prices.

I live in a rural area. Most people, around here, drive 30 miles one way to work. Many of these people are at or below the poverty level. In the last week, I have lost 2 employees, because they couldn't afford the fuel for the commute. My Prep cook, also called my right arm, has left this job, because after fuel costs, baby sitting costs, and taxes, she could do better with welfare and food stamps. Hmmmm. She has been my prep cook for 2 years, and was a Welfare Mother before that. My point is this. I called my prep cook last night, and though my boss will not let me give her a raise, I am helping with her fuel costs. I gave her a car, an old Geo Metro, so she can afford to come to work. Most employers wouldn't do this, including mine, but my Prep cook is well trained, a good friend, and I could not replace her easily. My point is this. Many lower paid employees, are going to be returning to the Welfare roles due to the high cost of commuting to and from work. Especially those that make minimum wage, and have a commute of 20 miles, or above, one way.

This can not be good for the economy.

Later

Dave (A.K.A. Homebrew)

Point taken. Thanks.