Fuel Prices

[Mr 5 0]

Originally Posted by 82 GT

It's amazing how someone can claim a "victory" in a totally objective discussion. How does that work Mr. 5 0?

Please quote the line in any post of mine where I claimed 'victory'. You are mistaking me with Unit 5302. He never loses an internet debate, you see (in his own mind).

A debate is like an argument with your girlfriend or wife....neither side ever capitulates. Both sides continue believing that their views are the correct ones.

Thanks for sharing your wisdom with us

Remeber that superiority complex I was telling you that you had?
It has shown it's ugly head multiple times during this thread.
I have also observed you "belittling" unit and others throughout this thread.

Then, we're even. If I am belittled by others, I reserve the right to do likewise, when insulted. Fair is fair.

If you cannot handle a serious discussion don't blame others who can and then go on and whine about my alleged 'superiority complex' because you cannot deal with my responses.

Also, how is it that you dislike people judging you who "don't know you from Adam", but it seems perfectly ok for YOU to judge others that "you don't know from Adam"?

I was responding to assumptions made by others about my occupation. They were incorrect and I was pointing that out. I do not make the same assumptions about others occupations or status in life.

Most of us have never met you but you're painting an ugly picture of yourself.

Please, spare me the finger-wagging self-righteousness. I have been a member of this website for over 8 years, was an administrator and moderator (I voluntarily 'retired') and have helped more people than you can ever know. That you may not have a 'pretty picture' of 'Mr. 5.0' is totally irrelevant to me. It's just an internet messageboard; nothing more or less and what some anonymous people far away from me may 'think' about a few posts I have made is simply not very important. Let's keep things in perspective, shall we? Thanks.

[Mr 5 0]

Originally Posted by nastyn8

yeah i said something, you're a lame p.o.s. and I could care less what you think or say about me or any other of these guys.

The feeling is mutual, I assure you.

You come up insulting everyone with just what they think may be what is happening. There's a big difference between correcting someone and insulting someone. I'm not going to discuss this with you anymore b/c you're all talk.

I believe that 'talk' is all we have to work with on the internet.

In any case, Unit 5302 and I had a rather civil discussion regarding our divergent views on gas prices until he became frustrated when he couldn't dominate the discussion and started attacking me, as he tends to do when he can't keep pretending to be the smartest guy in the room, as it were. The other guy I exchanged messages with was simply uninformed, nothing more, but he didn't handle that reality well, either, just like you.

Oh well. It's just the internet. Here today, forgotten tomorrow.

[nastyn8]

Well maybe we can come to terms. Its not all in what you have to say man it's your tone. Anyway have a good one

[grey88gt]

Originally Posted by Capri306

Honestly, I was hoping for over $5/gal, but it's already heading below $60/barrel for crude, so that dream is gone.

I think were gona see your $5/gal prices after Rita gets done. I have heard so many diffrent reasons for gas prices changing. LOL everyone of the oil companys around here that buy parts from us for there trucks and equipment have a diffrent reason. One guy told he was filling up his field truck to go run the wells and got a cursing, buy someone else buying gas. I hope you guys work it out, Mr 50 and Unit, your disscusion is ventureing away from fuel prices. We are all in here reading and trying to understand WHY the prices are sooooooo high. Thanks for the good opinions and info!

[Capri306]

Yes, I believe I may have been right about the fuel prices rising; $3.00/gal might be a 'deal' in a week's time from tonight if things go as bad as they appear to be.

Getting back on the thread topic, yes, this may happen (~$5.00/gal) as long as no more refineries are built in the United States. We haven't built a single refinery since the 1970's, yet we're using more fuel as time goes on.

Here's a novel idea: try not to think of fuel in terms of gasoline alone. Fuel, in the form of refined petroleum, powers EVERYTHING: our cars, trucks (both gasoline and diesel come from petroleum), many of our power plants, etc. All of the things we take for granted in the 21st Century depend upon refined petroleum.

Today I heard that something like 23 refineries were closing temporarily due to Hurricane Rita coming, and that this would cripple our refining capacity by 26%!!! WTF?!?

Here's a quote from one of the online papers I read (emphasis mine):

Together with the 5 percent of U.S. refinery capacity shut since Katrina, the four closed Texas refineries add up to 11.5 percent of U.S. oil refining.

How sad is this? We need more fuel, yet the supply is more crippled than ever before.

Demand is outpacing supply. This is Economics 101, folks. Of course you're going to see high gasoline prices; there simply isn't enough to go around in great abundance. If the laws prohibiting the building of refineries were repealed or removed altogether, you'd have sub-$2.00/gal gasoline almost as soon as they were built.

As for those people who believe that the oil companies are "gouging" us, you're half right. They charge what they do because no one will stop them. However, don't you think that they'd be making more of a profit if they could produce more gasoline? It's better to sell 10 billion gallons of gas at $2.00/gal than 2 billion gallons at $3.20/gal, no? The long-standing economics of the auto industry do not apply here; not everyone needs a new car, but everyone needs petroleum.

Personally, I think the price per gallon is 'shocking' to people, but they're not really spending much more at the pump. They're just limiting their spending on gasoline, and perhaps making less trips than they would otherwise.

I live in Grand Rapids right now, because I'm going to college. I will honestly claim that I don't go home on weekends as often as I did last year, and that it's mostly because of the gasoline cost. However, I don't think I spend much more money at the gas station because of the higher prices. I simply cut down on the number of trips that I make, only using the car when NECESSARY. Perhaps I'm spending LESS than I did last year on gasoline, but I can't say that and be sure of it. I do know that I am absolutely more conscientious of how much I drive and how much gasoline I use.

[Mr 5 0]

Originally Posted by Capri306

As for those people who believe that the oil companies are "gouging" us, you're half right. They charge what they do because no one will stop them. However, don't you think that they'd be making more of a profit if they could produce more gasoline? It's better to sell 10 billion gallons of gas at $2.00/gal than 2 billion gallons at $3.20/gal, no? The long-standing economics of the auto industry do not apply here; not everyone needs a new car, but everyone needs petroleum.

Personally, I think the price per gallon is 'shocking' to people, but they're not really spending much more at the pump. They're just limiting their spending on gasoline, and perhaps making less trips than they would otherwise.

Thanks for underlining my contention that while gas prices are clearly high, relative to a few months or a year ago, drivers are far from being 'gouged' in the ridiculous way some folks seem to believe. Why do some people assume that that cheap gas is somehow a constitutional right? It is not. It is a commodity and subject to all the vicissitudes of any commodity sold on the open market. Of course pump prices will rise when the gasoline supply is falling below demand, as you clearly stated. That is a given, to any rational person.

Do we like it? Of course not! Higher gas prices take more out of our personal budgets - and no one wants that. However, we still pay a relatively low price for our gas and considering the lack of refineries and the increase in cars and drivers on the roads over the past 30 years, the U.S. is doing pretty darn good as far as the price - and availability - of gas goes. That two oil companies merged, are more efficient and - due tpo demand - sell more gas and oil and thus, make more profits is not the sinister situation some people seem to want to believe. I am pleased that you seem to understand that. Pass the word.

It's easy to demonize 'big oil' and whine about gas prices, making accusations about 'gouging' and 'rip-offs', etc. A whole lot easier than actually considering some of the realities associated with the pumping, refining and selling of gas and oil, looking at the relative price of gas at the pump, which is still reasonable, and understanding that while the oil companies make big profits, they sell a lot of product, have huge expenses and are already well-regulated.

[MEDIK418]

It’s me again. I apologize for walking out of this debate some time back but I got busy and wanted to do some research before I weighed in again. I have been told for so many years that the price of gas is market driven and that was that. It gave me a warm fuzzy thinking I was in on some great secret that nobody but us insiders could ever understand and all you poor fools were just going to have to suffer your ignorance. Truth was, I had little clue what drove the price of gasoline at the pump or the refinery up or down.

My arguments of past haven’t changed and as limited as they were in detail, they still stand true. The market does indeed drive the price at the pump but there’s a lot reasons and none of them have anything to do with “Big Oil” trying to scam us.
Have you ever wondered why the big oil companies have NEVER been found guilty of price gouging? There have been plenty of investigations and don’t tell me it’s the republican cover-up either. There have been plenty of Democrats whining over the years and so far, not one oil refiner has been found to be gouging anyone.

I read where someone here claims they’ve never talked to an oil company employee who wouldn’t defend his company to the bitter end. I say he hasn’t talked to anyone I know. This is the oil belt here sir and most of the employees in these parts spend the better part of their existence trying to find ways to screw the company or bring to light the ways the company is trying to put it to them. You’ll almost never hear one defending the company name unless you count the number of times they try to correct the spelling of “Mickey mouse outfit”

The cartoon “Dilbert” is a great example of how most of us here feel about the people who run this place.

But as evil as we think they are, we all understand that as prices go up and down, we get it in the arse just like everyone else in the country. We simply choose to whine about the price of Nikes and bottled water instead of gas because we understand what it takes to make a gallon of it and knowing that, it’s hard to find fault with the cause of our grief when it’s our efforts, good or bad, that go into how much we pay at the pump. I think that, more than company loyalty may be cause for any defensiveness you will find with an oil company worker.

Why the high prices?
First off look at what it takes to make a gallon of gas. It’s amazing it’s not higher than it is. Take for example the natural gas bill for one month. Two months ago our balance sheet showed a gas bill of $275,000 for one month. In December, that price will double for us just like the rest of you. Every process here relies on heat, chemical reactions and electricity. Two of these are paid for just like you do for your house. We don’t get any breaks on price either since we buy the stuff from outside firms who don’t care how much we have to spend for it. If we don’t buy it someone else will.
Crude oil prices: There a number of costs that make up the price of a gallon of gasoline. Utility costs, maintenance costs, marketing costs and of course, crude oil prices which make up 44 percent of the price of a gallon of gas. If crude goes up, that 44% is bigger, so goes the reduction of crude prices.

By the way, did any of you notice that OPEC announced last week that our oil companies needed to increase our refining capacity so we wouldn’t have shortages when disasters like Katrina hit us? Aren’t these the same guys who not 6 months ago said the United States uses too much oil ( fact is we use about 10 times more than any other country on the planet) Do you think that they’re hurting now that we can’t refine as much as they are used to sending us and it’s scaring them a little. If we stop buying their oil, they’ll be in a bad way in a short time.


Ok, enough stonewalling. Why does the price of gas fluctuate so much if the big oil companies aren’t causing it? It’s really pretty simple when you start to root out all the garbage that goes on to buy a gallon of it.
Let’s say you are a jobber. He’s the guy who delivers the gasoline to the gas stations, convenient stores . . . wherever. I’ve laid a lot of blame on jobbers in years past for the ridiculous jumps in gas prices and still do but now it’s tempered with a little more understanding of how the system works. I laid this blame after watching the price of gas out the door at this plant remaining the same through a three week period that saw fluctuations of over 40 cents a gallon in our area.

Anyway, you’re a jobber. Your primary responsibility is to make sure the people you supply gasoline to have a constant supply to sell. Most jobbers have contracts with outlet stores and are committed to see they have product to sell. If you can’t supply the product, they can’t buy, if they can’t buy, they go out of business. They go under, pretty soon you start to lose enough customers that it’s looking bad for Christmas this year. If they go under because you couldn’t keep up your end of the contract . . . can you say lawsuit?
It stands to reason that the jobbers have good reason to be competitive enough to maintain a reliable supply to their customers.

Let’s have a hurricane. Better yet, let’s have one that takes out roughly 30 percent of the nation’s refining capacity. Add to that the loss of 45 percent of the offshore wells we get our oil and natural gas from. Shoot. . . let’s don’t even go that far. Let’s sink an oil tanker in the Red Sea. Gee. . . That might happen again, or the oil transporters may choose not to send as many tankers that way until the danger is over. Whatever the reason, Americans will start to panic buy at the pumps. Think it ain’t so? Look what happened after Sept. 11, 2001. People went nuts in this country and if you were one of the knot heads who ran to the pumps after it happened, I’m talking about you. The only reason they went nuts like that was a fear that the oil refineries were next. Oh My!

Before any of you think I thought this up, think again. I did a lot of research with oil industry publications and some of the marketing people in our company and some of the few jobbers I know around here. There’s no big secret about how it works but not many people understand it so here’s my limited view of what I found.

When these calamities occur, jobbers begin to bid higher for the gasoline they buy. Ever hear about gasoline futures? Jobbers buy gasoline on huge bundles. Month by month or week by week, they buy gasoline today for the empty tanks of three weeks from now. Forget the time intervals as they vary depending on the customer base and average sales volume for that jobber. They see a problem on the horizon and they start to worry. People panic buy. That’s a fact of life so you might as well prepare for it. He starts to bid higher for the gas he needs next week or even tomorrow.

Pretty soon all of them are in a bidding war in hopes of maintaining inventory so outlets don’t go dry. Once the bidding goes through the roof, they have to raise the price at the pump to offset the price he just promised to pay three weeks from now. Typically, jobbers don’t have the “deep pockets” the big guys do and to expect them to be able to absorb the temporary deficiency is often asking a lot.

Who are they bidding? The refiner, that’s who, Please don’t insult your own intelligence by trying to rationalize how a responsible refiner would refuse the higher bid so everything will be fair and everyone will be happy. They’re in this for the money. They accept the high bids happily. If the bids go high enough for long enough, the margins start to go higher and they make obscene amounts of money from it.

Margins are those magical costs versus profit leftovers. If it costs 40 dollars a barrel to process everything you can wrench of a barrel of oil and you can sell all of the resulting products for 50 dollars a barrel, you have a 10 dollar a barrel (profit) margin. It’s also called crack spread. Normally it takes a 3-4 dollar margin for a refinery to stay afloat. Anything less and you are in the red. Most years, you try to balance the red with the black and hope the end result is the right color.

As I said, oil companies are completely and totally at the mercy of the almighty margin. An oversimplification is that while they do have some blame for the steady state price of gas, they don’t have much control over margins.

Recently (last year or two) calamities of one sort or the other have conspired to cause jobbers to make those god-awful bids simply due to uncertainties in the oil market. No one thing caused it but rest assured it was all based on how they perceived you and I would react to the news. Some of the costs are from the big guys having to spend more in utilities and raw products but those are slow in coming. Don’t take my word for it, look at the business section of your local newspaper. The refinery prices have been in there for years for all to see.

I’ve said it for years and will continue to say it. If you want the price of gasoline to go down, stop driving so much. Eventually, after figuring out the wars, hurricanes and every other short term calamity, the price will come down. It’s been proven over and over again. Look back over the gas prices for the last ten to twenty years and you can’t argue that point. Not so much because we’ve driven less but because when the “emergency” is over, things tend to go back to normal. If you stop driving as much as we do now, the market simply won’t bear the glut and the price will work its way down.

Want to stop the sudden jumps at the pump? Stop being the idiot who runs to the gas pump every time an oil well blows up in Iraq or some terrorist decides to make a threat that might . . . MIGHT affect some small part of the oil industry. We’ve seen first hand how we can lose over a third of our refining capacity in this country and after the initial freak-out by the press and the numbskulls who believe everything they see in the news; we can bounce back pretty quickly. True, we’re not back to the norm of a year ago but we’re headed that way and barring any sort of major disaster we should be back to business in 8-12 months. Gas prices may never go back to the dollar and a dime levels we saw a while back. It simply costs more now to make a gallon of it. I do believe that we will see another half dollar come off after everything is back up and running in the Southern half of our world.

OK, I’ve opened Pandora’s box, let the stoning begin.

[Capri306]

Just imagine if we could get everyone, or at least those to whom it would be practical, to ride a bicycle instead of driving to work. Instant price drop.

Oh, not to mention the drop in pants size, too!

[82 GT]

Originally Posted by Capri306

Just imagine if we could get everyone, or at least those to whom it would be practical, to ride a bicycle instead of driving to work. Instant price drop.

Oh, not to mention the drop in pants size, too!

Well...that will never happen because we Americans, are lazy!
Sad but tue

[Unit 5302]

MEDIK418, there are very few industries or major companies in this country which aren't very much like Dilbert of Office Space, IMHO.

Again, the points you raise are completely valid, but we see two completely different driving forces behind the final outcome. Let me further complicate and simplify things at the same time.

Step 1 - Oil companies bid on oil futures. They are buying oil to pick up at a future date at a set price today. Much like if you special order something from a store. You set a price now, it comes later.

Step 2 - Transportation of oil to refineries. This hasn't changed much.

Step 3 - Refining process. Again, very little changing here in the past few years, certainly no recession in technology or efficiency. It is worth noting that the amount of gasoline that can be refined from any particular type of crude or shipment of crude is different. Some types of crude yield far better supplies of gasoline than others. This is not really relevant to the ultimate price though, IMHO.

Step 4 - Jobbers bid on gasoline futures, much like the oil companies bid on oil futures.

Step 5 - Transportation of gasoline to stations. There is some additional expense here as the cost of diesel for the trucks increased along with the price of gasoline, but the additional cost is insignificant to the total price of gasoline.

Step 6 - State and Federal taxes are added to retail use gasoline. In Minnesota, this additional fee adds $0.40/gallon.

Step 7 - Station markup. Gas stations typically enjoy a small markup; however, they tend to raise and lower prices according to the largest retailer in the area. i.e. Super America largely controls market trends in Minneapolis. In Minnesota, the minimum markup is set to maintain competition. It's $0.06.

Hurricane Katrina resulted in the following issues:

1) Oil companies bid dramatically higher for crude.
2) Jobbers bid dramatically higher for gasoline.
3) People paid much higher prices at the pump.

Let's evaluate why 1 and 2 happened, since 3 is quite obvious.

1) The skyrocketing price in crude oil was created for what reason? Refinery capacity had been significantly reduced, and the oil companies have repeatedly stated that refineries in the US are already operating at max capacity, normally. This means that the actual supply of oil was suddenly much greater than demand. Except there is one other issue. The oil production in the Gulf of Mexico was significantly reduced. What impact did that have? Considering the Gulf of Mexico produces only a fraction of the approximately 30% of US oil used domestically, not enough to offset the production capacity lost. In other words, oil companies had less need for oil than they had before the storm because they couldn't refine it anyway. Yet they fought tooth and nail to dramatically raise prices of crude. Back to this in a moment...

2) Jobbers also bid much higher for gasoline, but for what reason? Since oil refineries typically store very little gasoline compared to total production capacity, it would make sense that a jobber might bid much higher to secure fuel to sell to stations. Oil companies and refineries would be rather dumb to turn away higher profits, much like a seller wouldn't cancel an e-bay auction because they were getting too much money. That being said, this is based on the assumption that jobbers felt future supplies of gasoline would be more difficult to find, especially since the US refineries were already at maximum capacity before the storm. This would imply taking 25% of the refining capacity out of the equation would create a fuel shortage, making it important to secure fuel, even at higher prices to ensure you had something to sell. This would also imply that somebody would have fuel shortages. Were 1 in 4 American's unable to get gasoline at a local station? Was gasoline rationing implemented to ensure everybody was able to procure the fuel they needed?

...This brings me back to the increasing crude prices, and why the jobbers bid so high. The oil companies used the increased crude prices as an excuse for rapidly increasing prices at the pump. Even though the oil they were purchasing would not be used in the immediate future, they passed this cost along to the consumer immediately. To be fair, the price of gasoline also immediately drops after oil prices fall, albeit not nearly as quickly. In the meantime, the oil companies painted a very dire situation regarding immediate gasoline refining capability forcing the jobbers into a high bid mode. Jobbers are also professionals, and extremely competitive, much more so than oil refineries and companies as there are many more people they're in competition with.

3) The end result was that people paid far more at the pump than they should have. The oil companies, who weren't actually refining and selling the oil they paid $70/bbl for reaped record profits as a result of the fear they intentionally created regarding fuel shortages. The reasoning they gave behind this to the US Senate? If they hadn't intentionally increased prices, there would have been shortages. How many of you decreased your fuel consumption by 25% or more? Anybody stop going to work 1-2 days a week? Maybe you didn't go to the grocery store? How many of you went to a filling station and found they were out of gasoline, not because the lines were wrapped 2 miles around the place with panicked people two hours prior or that the power was out, but seriously because they were unable to secure a reasonable supply of gasoline? There was no shortage, thus no realistic supply/demand model to apply here. Yes, supplies were somewhat reduced, but almost everybody that wanted to fill up did, and exactly when they wanted to.

This is what happens to capitalist markets when there is no or little competition. Small groups of companies can cooperate to control the price of goods and services in the market.

The truth that I see is that the oil companies knew exactly how to play the American people, while still having an alibi when it came to explaining why Americans were suddenly paying so much more to the US Government. Since the current leaders of our government have very little desire to actually attack big oil (lots and lots of soft money), they still need an explanation for their constituents, and this all worked out well for big oil.

[MEDIK418]

I agree we see things differently and I wish to point out a couple of things you mentioned that are simply not as it happened.
First was step three: Nothing has changed in the refining process in the past few years? This is ludicrous. I refer you to the last post I made. Consider the cost of refining gasoline. The utility cost, natural gas, electricity, water, has gone out of sight over the past few years.

As I said, the refiners pay the same price you do for all of these things. This winter harbors an approximate 50-60 percent hike in natural gas and the past two years have seen these prices skyrocket. To say this hasn't affected the cost of refining gasoline is simply wrong.
And yes, the refining processes themselves have changed in many states due to state and federal legislation for "beautique fuels" that California for one has seen fit to force on the refiners. The capital investments alone for our company number in the billions in the last few years just to lower the sulfur content in gasoline and diesel.
These are facts and you cannot ignore them. ConocoPhillips made 13 billion dollars last quarter. A good chunk of change indeed. They also invested more than 13 billion in capital projects that will go toward finding more crude outside the OPEC countries in hopes of not having to depend so much on them.

Transportation to refineries hasn't changed much? Did you know that the oil companies are building safer double hulled tankers soce the Exxon Valdeez decided to dump it's load on the Alaskan coastline? They are much less prone to leaks but they haul considerably less than the older tankers and last time I checked, the price of steel has pretty much gone the way of oil and gas since these tankers were started. You can't tell me that building a dozen of these monsters in as short a time as they have doesn't raise the cost of transporting oil.


Transportation to gas stations indeed has gone up some but as you mentioned not enough to cause a signifigant rise but the major oil companies generally don't deliver their own gasoline. Jobbers do this. Yes there are a few who do own their own trucks but for the most part, distributors haul it.

Taxes. During the whole Katrina thing, the price of gas at the refinery has risen 26 cents a gallon. The American Petroleum Institute bears this out. Of that price, you failed to mention that 9 cents of that hike was taxes. Yes, taxes. Three cents a gallon was added just because of the added profit. I never said the prices weren't set rediculously high for no apparent reason but lets' be honest about who was charging what here.
Again, don't let the facts get in the way.

You mentioned that 30 percent of the nation's refining capacity was llost and you are correct, on that we agree. The only places where gasoline prices should have been affected was the deep south. As a rule we don't truck gasoline all over the country. The prices we saw for the rest of the country were rediculous BUT, look at the refinery prices. They didn't reflect the gouging levels we saw in many places.
Remember the "Beautique fuels" I mentioned earlier? You can't shift gasoline from one state to another simply because one state's refiers who have been forced to meet that state's stringent fuel requirements can't just up and change the way they refine gasoline to satisfy a neighboring market. You run out of your state's fuel, there's a better than average chance, you can't borrow some from the folks next door.

I disagree with the assertion that the Jobber feared shortages in the fuel suplies bacause of the reduced refining capacity. Remember the big oil crisis in the early seventies? There was no shortage of gasoline. Our tanks were brimming full and most of the refineries were scrambling to find places to store the stuff. I'm not making this up. The public's panic buying caused spot shortages. PERIOD!
Jobbers know that people tend to go off the deep end when a perceived threat to the supply is valid enough in their minds to cause them peoblems in the not too distant future. Jobbers know this and they bid higher bacause they know the war for supplies will heat up when the trucks can no longer get their deliveries made fast enough to keep the spot shortages down. Stations wil begin to run dry from the block long lines of cars trying to get every drop they can squeeze out of the pump. This has happened over and over again and the jobbers know the drill. It has nothing to do with decreasing gasoline supplies. True, the deep suth would have suffered before too long but the rest of the country was never in any danger.

I'll never say that the big oil companies don't know their way around the business world or the buying public. Some of the shadiest deals of the century happened in oil company board rooms. What I am trying to convey is that if you look into the prices paid at the refinery for gasoline, you will see that they didn't reflect the rediculous increases we saw at the pumps this year.

One more thing and I'll shut up. Where were all of your concerns for the past 20 years when most of the refiners in this country were running in the red? Yes they made big money but have you thought about how the money was reinvested? This year alone, our company committed to 34 billion dollars in projects that will enhance our ability to produce cheaper fuels or increase the supply of crude and natural gas. You see, they havent been able to do that in about 20 years. '99 and 2001 were good years but after that, it's been a bust for two decades.
Before you go off about the millions the CEO's make, I agree they make way more money than I think they should but even if you took half of their salaries away to offset the price of gasoline for however long it would last, the affect wouldn't last a day or two.. . we use too much of the stuff for it to make a difference.

Stop listening to politicians who don't have a clue. If you ever want to find out how completely wrong the press and the government are on a particular subject, wait until they do a story on somethng you are intimately familiar with.

I remember back in the early seventies a Texas Congressman no less made the comment for all the world to hear that "if these refineries would run 24 hours a day instead of going home at 5 o'clock, there wouldn't be any gas shortage"
You know what? The public believed him. Hell, I believed him. I had no clue how much or how long it takes to start a refinery and most of the world still doesn't.
How stupid can one person be?

[MEDIK418]

I;d like to add one more point and then I'm through with this.
A case in point to illustrate how the public's perception and the panic buying that follows events in the oil industry.
In February of this year, we blew up a major part of our refinery. End result was we lost production for a little over 100 days. That's 150,000 barrels a day.
The price of gasoline never went up a penny anywhere in the country because of it. Wanna know why?

Nobody heard about it.

Outside of the 20,000 or so residents of this area, the news never got out. The press didn't blow it out of proportion, nobody felt the pinch and more importantly, the company didn't find it a benefit to "gouge" anyone.

[Unit 5302]

MEDIK, I'm talking about an immediate change in taxes, refining technology, and transportation costs. An immediate change that resulted in gas increasing 100% in cost over a two year period, and 50% over a few day period. Double-hulled tankers, ethanol blended fuels, less productive crude, and additional refining cost is all reasonable, and would lead to a general increase in cost for the jobber, and ultimately the consumer. These are changes over time, not a few days or even just the last two years where fuel costs have shot up. Reinvestment into the industry is really a weak excuse because any company that does not reinvest into itself is a dead company in short order.

As far as taxes on profits are concerned, you're barking up the wrong tree. I work for a life insurance company. The state of NJ actually has a retaliatory tax. If our product is sold in a state other than NJ, which has a 2.1% premium tax, and the state it's sold in has a lower tax, NJ actually taxes us for the remainder, LOL. Also, the federal government has concluded that there is profit being made by the insurance companies on the premiums paid to them. Even though the insurance company is already being taxed on actual profits, there is apparently a hidden profit in the premiums. Therefore, the federal government taxes the insurers directly on premiums you pay, and the insurance companies pass that tax along to you. It's called DAC Tax... I think in Oregon they refer to it as administrative tax or something of the sort. Anyway, it's pretty much industry wide at 1.25% that's passed along to the consumer.

You are also correct that many states mandate blended fuels because of EPA emissions laws and testing. Minnesota used to be one, but we no longer need ethanol blended fuels because our air quality has improved. That being said, we still have a state law that requires them, mostly as a subsidy to farmers.

You also make it seem as though I'm arguing over issues that are now 30 years old. I wasn't alive until the late 70s, and it wasn't really an issue of interest until I was at least 3yrs old. hahah. Oil companies were in the red because of competition. Now there is much less competition and prices are soaring. You're helping my point out here.

I was aware of the February incident. As was the rest of Minnesota because our gas prices shot up, thanks. Such was to be expected, just for the record. I can't see the oil company blowing up one of their refineries because they wanted to raise prices. I'm not sure that the economic loss involved from asset reduction would offset the gain from increased revenue and profits.

I don't need to talk about executive compensation. Other people are doing it for me, lol.

http://www.faireconomy.org/press/2005/EE2005_pr.html

Let me just say this. What executives make at a public company almost never has much to do with their salary.

In any case, I don't see as though any of your points are invalid, I just don't recognize them as concrete excuses for the dramatic increases in price at the pump over the past two years, and especially following Katrina. The oil companies also agree with me, as they stated when they spoke with the US Senate, and when they reported earnings for 1Q and 2Q 2005.

I suppose it's fair to ask what price gouging is. dictionary.com defines it as:

"pricing above the market when no alternative retailer is available"

The definition really doesn't make any sense to me. There wouldn't be a "market" to price above if there were no other retailers to buy from. Meh. I define it as really the same thing as price fixing. dictionary.com defines price fixing as:

"The result of an unlawful agreement between manufacturers or dealers to set and maintain specified prices on typically competing products."

This very much seems to be the case to me.

[Unit 5302]

Oh, and btw, I think gas prices right now are fine. Not that I like what the current price is, but I don't see any artificial increases due to price fixing/gouging right now.

[Phillyfanfrombirth]

I aways cringe when I see a thread like this...

LOL...

We're getting schooled on supply, demand, fear, speculation, regulation, taxation, globalization, conservation, and a showing of how impotent congress is...

In other words, markets.

[Phillyfanfrombirth]

Originally Posted by MEDIK418

I;d like to add one more point and then I'm through with this.
A case in point to illustrate how the public's perception and the panic buying that follows events in the oil industry.
In February of this year, we blew up a major part of our refinery. End result was we lost production for a little over 100 days. That's 150,000 barrels a day.
The price of gasoline never went up a penny anywhere in the country because of it. Wanna know why?

Nobody heard about it.

Outside of the 20,000 or so residents of this area, the news never got out. The press didn't blow it out of proportion, nobody felt the pinch and more importantly, the company didn't find it a benefit to "gouge" anyone.

Yes, they did go up... however, it was a big issue only in business news. The public generally doesn't react to a couple pennies at the pump.

[Phillyfanfrombirth]

Originally Posted by 82 GT

That only works in theory. People can't spend less on gas because we need it. Sure, we can cut back and consolidate our necessary trips to the stores and such but that wouldn't be enough to dramatically drop prices.
It's like asking smokers to quit buying cigaretts so that the price will drop......they can't...they need them...there're addicted.

I disagree.

We are talking about the marginal buyer, not the masses. World oil demand since 1998 has gone up about 10%, while prices had gone from $10 to $70... valley to peak... a 600% increase.

We do not need 30% reduction... Energy numbers that came out in October (every Wednesday at 10:30 Eastern time), which have led to the pullback in oil from $70 to $60, showed a decrease in demand of less than 5%... that marginal buyer was the one that was the one driving that price higher, when they left, the price fell.

So yes, oil is an elastic commodity, though its elasticity is surely limited.

[Phillyfanfrombirth]

Originally Posted by silver_pilate

I understand why prices rise for the cost of gas, but what I cannot comprehend is how suddenly, the very day after Katrina hit, all the gasoline dealers immediately had a 50 cent price increase. I know that they are raising prices in preparation for their own raised costs, but until they actually see those costs from their suppliers, they are raking in the profits. And we all know that there will be significant lag between the time that their costs drop and their prices drop. It's a racket, plain and simple.

More of a racket, though, is the cost of oil from OPEC. It costs them something like $4 to make a barrel of oil, and they turn around and sell for $70. That's a 1,750% mark up!! Imagine going to a bookstore and buying a textbook for $1312, and you might get a better picture of the markup. Of course, why Katrina should effect the price of crude is another quesiton, as it's not the supply of crude that's a problem, but the refining of the crude into usable forms that's been affected.

Oh well, bottom line is we all know we'll pay whatever they ask us to for gasoline. Sure, some of us my ride the bus a few more times, but when it comes down to it, we'll all keep driving.

--nathan

Cash markets shot up just as fast... it was the markets leading the retailer, not the retailer leading the markets.

[MEDIK418]

Originally Posted by Phillyfanfrombirth

Yes, they did go up... however, it was a big issue only in business news. The public generally doesn't react to a couple pennies at the pump.

I beg to differ. The official government watchdog information agency reports that for the month of February, 2005, gasoline prices held steady (actually dropped 2 cents a gallon) until the last few days of the month and rose 4 cents nationwide.

My point is that whenever the public perceives a threat, the whole market goes nuts for no reason. I can't remember the hurricane that tore up the gulf before Katrine. Anyway, there were some damaged resources in the gulf but the Western side of Florida took the brunt. One drilling platform in particular, owned by BP Amoco, was found listing about 30 degrees after the hurricane tore through it. There was fear that it would topple if hit by the next storm which was already brewing. Gas prices went nuts again. Interesting part is that the rig was being towed out to sea when it was hit. It had never been put into production but the media had us believing that we'd lose production for years to come if it sunk during the next storm.

[Phillyfanfrombirth]

Markets fluctuate daily, at the exchange and at the pump. Just as in stocks, rarely will you be able to peg daily fluctuations on one thing or another, merely supply and demand (and I would argue liquidity) are the culprits... a lesson in markets. Another lesson is lag times... there is a normal lag time between futures and retail. That lag time is minimized in times of hysteria, which we saw in the week following Katrina.

Thunderhorse is the rig that you are speaking of... and it was Hurricane Dennis. The monster rig was supposed to be online by early next year (expectations mean more to the market than anything), and that event seemed to throw doubt into future supply... something that was later realized with Katrina and Rita. Dare I say, once again, the market was right.

As far as the public perceiving a threat... here's some fundamental investment advice... when the public perceives it, your close to the end. Parabolic "no end in sight" mentality is a key indicator of market tops and bottoms...

We've seen it is baseball cards, beanie babies, Pokemon cards, stocks, bonds, oil, natural gas, and now real estate... Markets work, period.