I Forgot Dubya Is In The Oil Business

[JAMESBJOHNSON]

WHATS UP WITH THE PRICE OF GASOLINE?

Gasoline still costs over $3 a gallon where I live, but the cost of oil is around half of what it was when gas sold for $4 a gallon. The price of crude this morning is about $75 a barrel, $70 some places.

I did the math and my calculator sez gasoline should sell for $2 a gallon when crude costs 70-something a barrel.

 

[Selena_Kitt]

They were trying to work us up to $5 a gallon, and this whole economic tailspin threw them for a loop.

Now they want us to think that $3 a gallon is the new $2.

 

[trysail]

...I did the math and my calculator sez gasoline should sell for $2 a gallon when crude costs 70-something a barrel.

Show your math.

Either your calculator is defective or you're doing the math wrong. Don't forget there is $0.53 per gallon (on average) of state (varies by state) and federal tax. In addition, there are refining, marketing, transportation and distribution costs (amounting to roughly $0.60/gallon).

$75.40 Nymex Crude Future ($/bbl.) / 42 gallons per barrel

=$1.80/gallon
+$0.53/gallon (federal & state taxes)
+$0.60/gallon (refining, marketing, transportation cost)
_________
=$2.93/gallon,

Which just happens to be exactly where the current retail price of gasoline is in most areas of the country. There are regional differences— there always are. Areas adjacent to ports have access to both pipelines and gasoline that is imported (primarily Europe). Inland areas tend to have higher transportation costs.

 

[JAMESBJOHNSON]

SELENA

I recently read a book about the gasoline business. Unless the reporter was lying or stupid there shouldnt be a long lag between when crude oil prices drop and gasoline prices fall. According to the book, the oil comes in and goes out of the refinery rapidly. Jobbers sell the gasoline to everyone (including the majors) and the price gets changed every day at midnight.

Retailers lag crude oil drops so people wont delay buying gas (waiting for cheaper prices).

 

[JAMESBJOHNSON]

TRYSAIL

I sold gasoline, it doesnt work the way you say it does. Managers canvass their sales area for competitor's gasoline prices. The Indians sell it for whatever wont kill them, because in-store sales is where the money is. The majors try to kill the independents with price wars. And there are huge differences in gasoline prices from one neighborhood to another. Along the Interstate they sodomize you.

Generally speaking, taxes and overhead dont change regardless of what the crude price is. If crude cost ONE TRILLION a barrel, the tax is still 75 cents a gallon. I find that the closer you get to the wholesale tanks, the more gasoline costs.

Do the math yourself: If the pump price for a gallon of regular is $4 when crude sells for $147, a gallon of gas should fall $1 for every $36.75 that crude drops. Crude was selling for 75.60 this morning, so...a gallon of gas should cost $2.07. To make my point: A couple of stations here are selling gas for $2.25 a gallon, but most are still over $3 a gallon.

 

[JuicyBoom]

I know here in the southeast, there are still shortages due to the pipelines not being fully operational since the hurricane (a friend of mine owns a very small oil business). Shortages will cause higher prices. That said, prices do seem very slow in coming down.

 

[trysail]

TRYSAIL

I sold gasoline, it doesnt work the way you say it does. Managers canvass their sales area for competitor's gasoline prices. The Indians sell it for whatever wont kill them, because in-store sales is where the money is. The majors try to kill the independents with price wars. And there are huge differences in gasoline prices from one neighborhood to another. Along the Interstate they sodomize you.

Generally speaking, taxes and overhead dont change regardless of what the crude price is. If crude cost ONE TRILLION a barrel, the tax is still 75 cents a gallon. I find that the closer you get to the wholesale tanks, the more gasoline costs.

Do the math yourself: If the pump price for a gallon of regular is $4 when crude sells for $147, a gallon of gas should fall $1 for every $36.75 that crude drops. Crude was selling for 75.60 this morning, so...a gallon of gas should cost $2.07. To make my point: A couple of stations here are selling gas for $2.25 a gallon, but most are still over $3 a gallon.

You're wrong. Unless a competitor is willing to sell the product at a loss, the wholesale cost is a combination of the cost of crude, the cost of refining it, the cost of transporting it, the cost of storage and the cost of marketing. Rational competitors do not sell at less than cost.

Retailers (who, by the way, are for the most part independent businesses unrelated to the integrated energy companies— the majors are long gone from the business) are free to sell gasoline at any price they choose. You know as well as I do that the independent retailers compete in a variety of ways; some sell on price, some sell on location.

Some of 'em are irrational (which explains the steady decline in the number of retail locations over the last two decades) and have a bad habit of "selling at a loss and trying to make it up in volume." That sort of behavior doesn't tend to last very long.

You know as well as I do that state governments don't permit competition on the interstates. They solicit bids for the exclusive right to sell gasoline. Having paid an arm and a leg for those rights, retailers don't have much of a choice except to recoup the cost through higher prices. The same crap goes on in the sports stadiums. You know perfectly well why a beer costs $6.00 and a hot dog goes for $7.00 at Joe Robie or the Orange Bowl or Yankee Stadium or Tropicana or Fenway or any other of these obscene government giveaways that are professional sports.

Of course, there are retailers who sell gasoline as a loss-leader— they're using it to lure people to their location so they'll gamble or buy groceries.

Thus endeth my last post on this thread.

 

[Boxlicker101]

Show your math.

Either your calculator is defective or you're doing the math wrong. Don't forget there is $0.53 per gallon (on average) of state (varies by state) and federal tax. In addition, there are refining, marketing, transportation and distribution costs (amounting to roughly $0.60/gallon).

$75.40 Nymex Crude Future ($/bbl.) / 42 gallons per barrel

=$1.80/gallon
+$0.53/gallon (federal & state taxes)
+$0.60/gallon (refining, marketing, transportation cost)
_________
=$2.93/gallon,

Which just happens to be exactly where the current retail price of gasoline is in most areas of the country. There are regional differences— there always are. Areas adjacent to ports have access to both pipelines and gasoline that is imported (primarily Europe). Inland areas tend to have higher transportation costs.

It's a lot more expensive than that around the SF Bay Area. Also, you didn't include sales taxes. I think most places that have a sales tax on gasoline incorporate it in the pump price. In San Jose, for instance, if the listerd price for a gallon of gas is $4.33, that includes 4.00 for the gas and .33 for the sales tax. That's in addition to the state and federal excise taxes, which are per gallon. On sales of gasoline in CA, the state makes more money than anybody else, except the king of Saudi Arabia. They don't have to work for it, either.

 

[Katyusha]

TRYSAIL

I sold gasoline, it doesnt work the way you say it does. Managers canvass their sales area for competitor's gasoline prices. The Indians sell it for whatever wont kill them, because in-store sales is where the money is. The majors try to kill the independents with price wars. And there are huge differences in gasoline prices from one neighborhood to another.

As of last night, the station by my house, and other nearby stations were selling gasoline for approximately $3.19 per gallon. A mere eight miles away the stations are all selling it for around $3.39-$3.49 per gallon. Down in the city, in some places, it's still well over $3.50 per gallon, but in others it's between $3.39 and $3.50. In central and southern Indiana, which isn't all that far away, gas sells for around $2.68 a gallon.

My area is proof that "regional" price differences are much smaller than, say, the Midwest/Southwest/Pacific Northwest/etc., or even individual states. Which means that as near as I can tell, JBJ is correct.

And if I recall correctly the last time oil sold for $75 a barrel gas prices were $.60 or so lower in my area than they are right now.

 

[Katyusha]

You know as well as I do that state governments don't permit competition on the interstates. They solicit bids for the exclusive right to sell gasoline. Having paid an arm and a leg for those rights, retailers don't have much of a choice except to recoup the cost through higher prices.

I'm sorry...what? On the tollways here, no, there is no competition; Exxon-Mobil sells the gasoline at all the oases, and that may or may not be true of all tollways in the country (I've driven many but nowhere near all in all states that have them, so I will not make an assumption one way or the other). But on the interstates in general? Why is it that there will be a Shell, a BP, a Mobil, and a Chevron, all within one tenth to one fifth of a mile off the interstate? Surely that's because they're all the same company and trying to make a squillion dollars off each gallon, and pulling the wool over our eyes to make us THINK there's competition? Oh wait, they aren't actually ON the interstate, they're just off the exits, so they aren't bidding for the right to sell gasoline on the highway.

I've done more than enough gallivanting all over this country in my car to know that clusters of gas stations, usually the majors, pop up on the interstates because they know they can make a huge buck, and because they know that that's where the price wars will be most effective. Gas for $2.68 when supposedly the national average is $2.93 or so? ALL the stations along a given section of an interstate selling for that price, when they ought to be selling for more because they paid a jillion dollars for the rights to sell there? Sorry, I have to wholly disagree with what you're saying.

 

[trysail]

Katyusha,
Many limited access (toll) highways on the East Coast of the U.S. have sole source suppliers. The contracts are let by the respective states and bid upon by companies. Prices are notoriously high for that reason (as previously cited). Sunoco, for example, holds the exclusive right on the Pennsylvania Turnpike. Similar situations include (but are not limited to):

New Jersey Turnpike
Pennsylvania Turnpike
Massachusetts Turnpike
New York State Thruway
I-95 in Maryland & Delaware

A small businessman (i.e., a franchisee) operating under the logo of a major brand does not locate a service station in the boondocks of, say, southwest Virginia next to an exit off I-81 for charitable purposes. He (she) locates a station there knowing that anyone needing petrol that far in the bushes is going to be price-insensitive.

At major urban and suburban intersections, it's not unusual to see four different gasoline stations on each of the four corners. These franchisees know full well that they're going to have to razor-thin margins and high volumes. They are much more likely to compete on price. In my location, there's a Shell and an Exxon across the corner from one another. The Shell guy is ALWAYS one to two pennies higher than the Exxon station. Presumably, he knows what he's doing but I'm amazed that he's able to stay in business.

Non-urban franchise operators with less intense competitive locales try to differentiate themselves on the basis of service, location, doing repairs, convenience stores, selling TBA, doing state automobile inspections.

 

[trysail]

(Fair Use Excerpt)
Oil Falls to 16-Month Low, Gasoline Tumbles
By Mark Shenk

Oct. 22 (Bloomberg) -- Crude oil fell more than $5 a barrel to a 16-month low and gasoline tumbled as weakening fuel consumption outweighed prospects of a production cut by OPEC at a meeting this week...

...Gasoline for November delivery declined 12.29 cents, or 7.3 percent, to $1.569 a gallon in New York. Futures touched $1.5505, the lowest since February 2007.

Pump prices are following futures lower. Regular gasoline, averaged nationwide, declined 3.1 cents to $2.858 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Pump prices have tumbled 31 percent from the record $4.114 a gallon reached on July 17...

 

[Boxlicker101]

I'm sorry...what? On the tollways here, no, there is no competition; Exxon-Mobil sells the gasoline at all the oases, and that may or may not be true of all tollways in the country (I've driven many but nowhere near all in all states that have them, so I will not make an assumption one way or the other). But on the interstates in general? Why is it that there will be a Shell, a BP, a Mobil, and a Chevron, all within one tenth to one fifth of a mile off the interstate? Surely that's because they're all the same company and trying to make a squillion dollars off each gallon, and pulling the wool over our eyes to make us THINK there's competition? Oh wait, they aren't actually ON the interstate, they're just off the exits, so they aren't bidding for the right to sell gasoline on the highway.

I've done more than enough gallivanting all over this country in my car to know that clusters of gas stations, usually the majors, pop up on the interstates because they know they can make a huge buck, and because they know that that's where the price wars will be most effective. Gas for $2.68 when supposedly the national average is $2.93 or so? ALL the stations along a given section of an interstate selling for that price, when they ought to be selling for more because they paid a jillion dollars for the rights to sell there? Sorry, I have to wholly disagree with what you're saying.

In Ca, there are no tollways, except maybe in some isolated areas. The interstates are called freeways, because there is no toll. There are also no service stations. To buy gasiline, one must exit the feeway, and there will be a choice of as many as five brands for sale, all at close to the same rate.

I was in the SF Bay Area this last weekend, and gasoline was selling for about $3.65 per gallon, down by at least a dollar from a few months ealier. Fifty miles inland, away from the ports, it was selling for $3.27 pe gallon.

ETA: Sales taxes are higher in most of the Bay Area, but that would only account for about three cents of the difference per gallon.

 

[sutherngent985]

I live in the midwest and regular is selling here for between $2.62 and $2.65 most places. I have been observing 2 to 5 cent drops every few days for the past several weeks.

 

[DG Hear]

I live in the midwest and regular is selling here for between $2.62 and $2.65 most places. I have been observing 2 to 5 cent drops every few days for the past several weeks.

Same here, in this part of Ohio it's in the high 2.50's lower in Canton area.

 

[CrimsonMaiden]

$2.44 in town today.

 

[jomar]

It is very nice to see the fairly rapid response in gas price drops. I'm a rch less cynical about pricing.

 

[trysail]

(Fair Use Excerpt)
Suncor Energy CEO Predicts Failure of Some U.S. Oil Refiners
By Joe Carroll

Oct. 23 (Bloomberg) -- Some U.S. refiners may be forced to shut plants and go out of business in coming months as declining demand aggravates narrowing fuel-production margins, said Suncor Energy Inc. Chief Executive Officer Rick George.

U.S. oil refiners will also sell facilities, George said today during a conference call with investors and analysts.

``There will be some real fire sales,'' said George, who leads the world's second-largest oil-sands producer. ``We should actually see some U.S. refiners shut down. Some of the weaker refiners should go out of business.''

Calgary-based Suncor isn't interested in buying refining assets now because prices probably have farther to fall over the next two years, George said. Earlier today, Suncor trimmed its 2009 capital budget by 33 percent to C$6 billion ($4.8 billion) and slowed construction at its Voyageur project.

``Some of these assets are going to look a lot cheaper'' in the future, George said. Suncor, which has lost half its market value this year, is ``not for sale,'' he said.

The margin from processing crude into fuels such as gasoline and diesel tumbled 60 percent this year to $4.31 per barrel, based on benchmark futures contracts traded in New York.

Syncrude Canada Ltd., a joint venture led by Canadian Oil Sands Trust of Calgary, is the biggest oil-sands producer based on 2007 annual output.

A Standard & Poor's index of oil refiners that includes San Antonio-based Valero Energy Corp. and Tesoro Corp. plunged 74 percent this year, on course for the worst performance since at least 1995.