I'm confused(?)

[Jenny_Jackson]

Gas prices hiked fifty cents per gallon in 1999 when "70% of the Gulf Coast Refineries were down for maintenance". When the refineries came back on line (I'm not even going to talk about the fraud behind this) gas pricese remained at the same inflated level.

Gas prices hiked one dollar and more with hurricane Katrina and remained at essentailly the same price for 12 months (I know they dropped 3 to 10 cents) even though the supply seems to have continued unabated.

Now people are dancing in the streets because gas prices are down seven to ten cents. The Oil Company's explaination is that demand has dropped after the summer driving season. Why am I not understanding?

In 1999 oil anylists tried to explain the gas price increase saying the cost of a barrel of oil made up 30% of the cost of gasoline. At the time a barrel of oil was $62.00.

In 2005 the cost of a barrel of oil cost $68.00. That's a 12% increase over 1999. But the gas price increase was 51% on an $8.00/barrel oil price increase.

The Oil Companies now explain that the cost of a barrel of oil is determined by growth in market demand in China as well as "falling domestic production". This still doesn't explain how an $8.00 oil increase relates to a 51% gas increase.

Does this mean the Oil Companies are now using some "New Math" that we doin't understand?

 

[CopyCarver]

Does this mean the Oil Companies are now using some "New Math" that we doin't understand?

Of course. The equation is:

consumer $$$ + corporate greed = windfall profits for the oil companies

 

[TheEarl]

I'm just confused as to why petrol prices have fallen at all. They've dropped from 97.9p/litre to 89.9p/litre over here in just over a month and I can't for the life of me figure out why. The petrol companies aren't going to get any more sales by dropping the price (as petrol's a fairly economically inelastic good anyway) and I don't see what they're gaining from it.

The Earl

 

[Jenny_Jackson]

I'm just confused as to why petrol prices have fallen at all. They've dropped from 97.9p/litre to 89.9p/litre over here in just over a month and I can't for the life of me figure out why. The petrol companies aren't going to get any more sales by dropping the price (as petrol's a fairly economically inelastic good anyway) and I don't see what they're gaining from it.

The Earl

Ok... a little education on the Oil Industry.

OPEC: An organization that sets the price of Drilling Franchise and Pumped Volume. They do NOT set the price of oil.

An Oil Company goes to Sheik So-And-So in Saudi Arabia or some other OPEC nation and pays a "drilling franchise" fee of $20,000,000 or some such. The point is, there is no time restriction on the frachise. The company can drill as many wells as it wants in a specific area and pays $1.00 per barrel pumped to the Sheik when the well produces. The point is, the Oil Company OWNES the oil at the well head. The oil is transported to a storage dock owned by the Oil Company then shipped to refineries owned by the oil company on their own Oil Tankers.

Huricanes occur. Nations become unstable. And all the other things the Oil Companies claim affect the price of oil. But in fact, their cost doesn't change at all at the well head. Transportations and refining costs increase slowly over time because of wage increases and so on. But these are moderate cost increases.

The effective amortized cost of a barrel of oil at the refinery is about $13.00. So, where does the $68.00 figure come from? The Oil Companies can't sell all their product in the U.S. They put some of their oil on the "International Spot Market" for anyone to buy. Countries bidding against each other run the Spot Market price up to $68.00 (at one point $72.00) per barrel and the Oil Companies claim that is their "COST". It's not. That is just their way of manipulating the public perception of their cost.

It's all about greed.

 

[rgraham666]

It's all about greed.

And greed is good. Everybody with power believes that.

Who are we to argue?

 

[Jenny_Jackson]

And greed is good. Everybody with power believes that.

Who are we to argue?

You know, Rob, if I were a Republican and Bush supporter, I'd agree. But what's happening is the Bush Administration is pointing to GNP growth as an indicator of how the U.S. Economy is doing. In fact if you adjust the Oil Companies profits back to the 1999 level in GNP the economy is in the toilet. Guess that tells you who's really running the country.

 

[R. Richard]

I'm just confused as to why petrol prices have fallen at all. They've dropped from 97.9p/litre to 89.9p/litre over here in just over a month and I can't for the life of me figure out why. The petrol companies aren't going to get any more sales by dropping the price (as petrol's a fairly economically inelastic good anyway) and I don't see what they're gaining from it.

The Earl

The answer is simple economics. Your question tacitly assumes that "the petrol companies" are one entity. The petrol companies are any number of companies and they COMPETE for your business. The company that can produce a competitive product tries to sell that product at cost plus their markup. Each and very one of the companies would like a nice, hefty markup. However, the guy down the road is willing to take a little less markup to capture market share. The COMPETITION is what sets the price of petrol. If I run Company A and I can get light, sweet crude oil from some producer at a price below what the Saudis are charging, I can grab market share. The producers and consumers then play a little game back and forth until a balance is reached. The balance point determines what you pay for petrol. [By the way, you guys ought to try using gasoline in your cars, instead of petrol. We do and it is quite a bit cheaper.]

 

[Jenny_Jackson]

The answer is simple economics. Your question tacitly assumes that "the petrol companies" are one entity. The petrol companies are any number of companies and they COMPETE for your business. The company that can produce a competitive product tries to sell that product at cost plus their markup. Each and very one of the companies would like a nice, hefty markup. However, the guy down the road is willing to take a little less markup to capture market share. The COMPETITION is what sets the price of petrol. If I run Company A and I can get light, sweet crude oil from some producer at a price below what the Saudis are charging, I can grab market share. The producers and consumers then play a little game back and forth until a balance is reached. The balance point determines what you pay for petrol. [By the way, you guys ought to try using gasoline in your cars, instead of petrol. We do and it is quite a bit cheaper.]

There is a big difference between what the Oil Companies are doing and what is happening at the Retail Pump. The Retailers are franchised dealers who buy gasoline and other oil products at the going rate from their franchisor.

I did a google search of domestic Distributor Prices in the U.S. I found the price differences to be within one cent for Standard, Shell, BP, Conoco/Philips and Texaco. At the pump, locally, there is a twelve cent per gallon price difference.

You are not looking at the enormous profits the Oil Companies are making based on their actual cost of production and the price they sell it to their Franchised Stations. If you were in the business of making any other product, would you be allowed to make those kinds of profits?

The Chairman of Conoco Oil said on Charlie Rose three weeks ago when asked the question:

Charlie Rose: How do you justify increasing your profits 50% with no increase in sales volume.

Response: It all has to do with the price per barrel of oil.

Charlie Rose: Ok. The price of oil increased $2.00. Does that nearly double your cost per gallon?

Response: Well. We have to set some money aside for exploration and... um... other things.

Charlie Rose: Other things?

Response: Ummm... yes.

 

[rgraham666]

You know, Rob, if I were a Republican and Bush supporter, I'd agree. But what's happening is the Bush Administration is pointing to GNP growth as an indicator of how the U.S. Economy is doing. In fact if you adjust the Oil Companies profits back to the 1999 level in GNP the economy is in the toilet. Guess that tells you who's really running the country.

Yep.

What made the U.S. rich and powerful was manufacturing, which is a wealth generating action.

Now the people in charge are moving the manufacturing overseas and concentrating on 'finance', which is playing with money.

Same thing happened to Britain when it was the great world power.

"A culture which ignores history has no past, and no future." Robert A Heinlein.

 

[TheEarl]

The answer is simple economics. Your question tacitly assumes that "the petrol companies" are one entity. The petrol companies are any number of companies and they COMPETE for your business. The company that can produce a competitive product tries to sell that product at cost plus their markup. Each and very one of the companies would like a nice, hefty markup. However, the guy down the road is willing to take a little less markup to capture market share. The COMPETITION is what sets the price of petrol. If I run Company A and I can get light, sweet crude oil from some producer at a price below what the Saudis are charging, I can grab market share. The producers and consumers then play a little game back and forth until a balance is reached. The balance point determines what you pay for petrol. [By the way, you guys ought to try using gasoline in your cars, instead of petrol. We do and it is quite a bit cheaper.]

I'd not thought about it like that. You're right; I had assumed that they were one entity.

I don't remember seeing a drop like the one going on now for as long as I've paid attention to such things though.

The Earl

 

[Guest]

Could the drop be related to impending Congressional elections in six weeks?

Will prices go up again after the election?

Will they then go down again in two years, again prior to elections?

Discuss.

 

[Jenny_Jackson]

I'd not thought about it like that. You're right; I had assumed that they were one entity.

I don't remember seeing a drop like the one going on now for as long as I've paid attention to such things though.

The Earl

Has anyone thought that the mid-term elections are only six weeks away and lowered gas prices are one way for the Oil Companies to help ensure that their friends continue in Power?? I want to see an continuing downward spiral in gas prices even after the election. It ain't going to happen.

 

[Jenny_Jackson]

Could the drop be related to impending Congressional elections in six weeks?

Will prices go up again after the election?

Will they then go down again in two years, again prior to elections?

Discuss.

No, Ted.

This is a purely political move on the part of the Oil Companies on ensure their friends stay in Power.

"The Oil Company Lobbys are all over the Capital telling Congress what they want. And they get it." - Tim Russert

 

[Zeb_Carter]

... If you were in the business of making any other product, would you be allowed to make those kinds of profits?

...

Um...yep. Let's talk about the Diamond industry, 300% markup on all diamonds. And the Drug companies, whose profits exceeded the Oil companies by at least 100%.

 

[S-Des]

Has anyone thought that the mid-term elections are only six weeks away and lowered gas prices are one way for the Oil Companies to help ensure that their friends continue in Power?? I want to see an continuing downward spiral in gas prices even after the election. It ain't going to happen.

It happened last year at almost the exact same time. The prices dropped almost as quickly (but over the course of several weeks dropped farther). Because my business is tied into travelling, I keep a close eye on gas prices. The other thing you haven't mentioned is the taxes. Here it's over 30 cents a gallon in taxes. The state is making a killing in tax revenue. Last year when it spiked to over $3/gallon, the governor rolled back the gas sales tax a bit to help the price (and to look good). This year, no mention of rollbacks. Now that the prices are dropping (they're speculating they'll go down at least 20 cents), it'll be forgotten. When it happens again next summer, I'm sure prices will go even higher (now that all involved know we'll put up with it).

 

[Jenny_Jackson]

Um...yep. Let's talk about the Diamond industry, 300% markup on all diamonds. And the Drug companies, whose profits exceeded the Oil companies by at least 100%.

The Diamond Supplier(s) is DeBeers. It's essentially a single source supplier. No one has any idea what their cost is.

As far as the retailer is concerned, a 300% markup is correct based on history. The retailer has to buy the product outright and sometimes gets "stuck" with inventory they either have to hold for an extended period or never sells at all.

The Drug Companies are another story. There is a certain amount of "market regulation" in that industry. There are a lot more drug manufacturers than there are Oil Companies in the market and, when a drug comes out there are overseas competitors (mainly in Italy and China) who jump in with cheap knock-offs. That's what happened to Bristol's "Tetrex" and what's happening now with Viagra.

 

[R. Richard]

If anyone thinks the oil companies are making way too much profit, I have a simple solution for you. Almost all of the major oil companies are public corporations with stock issued. Buy the stock and share in the obscene profits!

Before anyone is trampled in the rush, let me add that oil companies make out like bandits when the price of oil is rising. They buy the oil at say $60 per barrel and sell the products when oil is now at $61 per barrel and make big money. When the price of oil fall, the reverse is true. They buy the oil at say $61 per barrel and sell the products when oil is now at $60 per barrel and they get squeezed. Like any commodity business, the oil companies make it when they can and hold on when they can't.

If you want to make REALLY big profits, have I got the business for you! You invest a few hundred dollars in equipment and make perhaps $5 to $10 million per year. The only thing is, you have to convince coach that you can run 28 Blast better than anyone else. Good luck!

 

[Guest]

No, Ted.

This is a purely political move on the part of the Oil Companies on ensure their friends stay in Power.

"The Oil Company Lobbys are all over the Capital telling Congress what they want. And they get it." - Tim Russert

Now I'm confused.

I asked if it was tied to the elections, to politics, and you say no.

Then you explain that it is a purely political move.

HUH?

 

[CrimsonMaiden]

dropped 7 to 10 cents??

I don't know about everywhere else, but in the last two months, our gas has gone from about $2.89 a gallon to $2.29 a gallon... that's a 60 cent drop.

 

[Zeb_Carter]

It's a question of inventory. The inventory you have now, which you purchased at $60, is being sold at a high price due to the fact that now you are paying $68. When the price drops back down to $60 the price you sell your current inventory at will reflect this new price even though you paid $68 for those items as R.R. said.

 

[Jenny_Jackson]

Now I'm confused.

I asked if it was tied to the elections, to politics, and you say no.

Then you explain that it is a purely political move.

HUH?

Oops... Sorry. Part of that got cut off because I was moving too fast.

Your question was... "Will they then go down again in two years, again prior to elections?"

And my answer that got cut off was : I don't think it will, no. The reason I say this is because right now the House is in a fight to maintain majority. I don't see that happening in 2008. In fact, with a Democratic majority I see just the opposite which will give the Republicans something to point at to say, "See? They are doing a crappy job."

Sorry about the mix up. I have too many things going on here... phone and people walking in to do business.

 

[Jenny_Jackson]

dropped 7 to 10 cents??

I don't know about everywhere else, but in the last two months, our gas has gone from about $2.89 a gallon to $2.29 a gallon... that's a 60 cent drop.

Here regular gas has gone from $2.99 to $1.89/gallon. It's different everywhere. But Oregon and Washington it's true. California, I believe is around $0.15 this morning.

 

[Jenny_Jackson]

It's a question of inventory. The inventory you have now, which you purchased at $60, is being sold at a high price due to the fact that now you are paying $68. When the price drops back down to $60 the price you sell your current inventory at will reflect this new price even though you paid $68 for those items as R.R. said.

That's true on both the Distributor and Retail levels, Zeb. The problem is, the franchised station owners still make the same profit per gallon, whil the Distributor/Producers see a modest drop in their already inflated profits. No way will we see $50.00/bbl oil again. At that level, we would see gas prices back at the $1.29/gallon (Plus Tax) level and the Oil Companies would be "starving" with a profit margin of less than 10% like most companies make if they make any profit at all.

 

[Guest]

Your question was... "Will they then go down again in two years, again prior to elections?"

And my answer that got cut off was : I don't think it will, no. The reason I say this is because right now the House is in a fight to maintain majority. I don't see that happening in 2008. In fact, with a Democratic majority I see just the opposite which will give the Republicans something to point at to say, "See? They are doing a crappy job."

I may agree. It will depend on who has the majority going into Nov 2008.

 

[Jenny_Jackson]

I may agree. It will depend on who has the majority going into Nov 2008.

With the Democrats needing 6 seats in the House for a majority and 22 "close house races" for seat held by Republicans, I would guess the Dems would take control there. My thinking is the Republicans will continue to have a small majority in the Senate until 2010 or 2012.