Journal Allen Zadr's Journal: Free Market: Oil Illustrated 10
It's not necessarily evil, and probably not a conspiracy. But it could be, and there's no way to tell.
Speculation
The fictional Oil company, AZoco, has just posted record profits, and you are paying more for gas. Simple logic is suggestive that AZoco is making money because of your suffering. If you did the same thing, you'd be price gouging.
It's not price gouging, if it's traded on the free markets, and the price is in-line with what the market says.
If AZoco were only in the gas business, and was suddenly pulling record profits on the rise of Oil prices, then clearly they are playing with the margins, and doing something sneaky (the price of gas would have to cost unexpectedly more than the sum price of oil + refinement + delivery).
The Stations
For instance, 7-11, Holiday and Stuckey's are in the Gas business... they use Gas to attract customer's to their retail businesses.
Imagine that I manage a gas station. I've been struggling lately because my customers don't buy as many pops, and - frankly - the margin I pull off gas sales is only a few pennies per gallon (usually between 3 and 4 pennies). My buddy who owns a franchise pays more for his gas delivery service, thus pulling only a penny and a half per gallon to compete with me. He's probably going to close his doors and beg for a manager job at the Speedway soon.
The Oil companies are not profiting on
Gas, they are profiting on Oil.
Oil, a commodity
Like any thriving gas company, AZoco has full or part ownership in a wide array of Oil production facilities (production varies from wells and drilling to strip mining). Oil is a complex and volitile business, and Oil is a frequently traded commodity.
Since, AZoco produces oil, it shouldn't
surprise anybody that AZoco is making
money off of high oil prices. Afterall
AZoco still sold oil at market price
through the relatively low oil prices
of the 80's and 90's.
Refinement and delivery
Gas price is tied to the price of Oil, but as I mentioned before, it's also tied to refinement and delivery.
Refinement is also a low margin business, and as such, there is only room for enough refinery businesses to match current need. Because of this, the gas refinery facilities lost during hurricane Katrina also have an impact on both the price and availability of gas. However, the price of Gas has not been greatly impacted by the availability. There have simply been some stations that have not been able to get enough gas. In those localized areas gas has been more expensive.
Delivery, well - it takes gas and oil to deliver gas and oil, and the price of delivery has gone up. This involves a fraction of a penny per gallon, but ultimately, this makes a difference as to whether a station has to charge a penny more on any given week.
Death
Sorry, I mean taxes. Taxes are a constant (as in constantly rising), but it takes an act of your state's legislature, and/or congress to raise the gas taxes. Federal gas taxes per gallon are at 18.5 cents per gallon. State gas taxes vary widely, but 35 cents per Gallon is typical. For some reason, Gas taxes are not in percentages, and as a result, the government does not see more money with higher prices (as opposed to retail inflation).
Refinement and new EPA rules
Yet another thing that has affected the price of gasoline is the additives that the EPA has forced into all gasoline. late last year (in northern climates, the gas is only mandated during daylight savings, because the new mix won't work well in low temperatures). As usual, California is one step ahead of the EPA on these things, making their prices even higher. For this portion of the price (which is near 10 cents per gallon in some states) the government feels it is responsible. and this little portion is why some folks in the government are thinking that they can help ellivate the problem on the other end through rebates or tax cuts.
Conclusion
The issue is far more complex than we are comfortable admitting to. I hope to have brought a common-sense view of gasoline prices and I hope you've found this useful. If you have anything further to add, please do.
clear as mud (Score:1)
Clearly? Then you must've forgotten what "margin" means. It's percent profit. I don't know if oil companies have been increasing it or not, but a 1st grader could tell you that they don't at all have to to pull record profits as long as there are record prices. If profits = m % of price, then 2*price = 2*profits, for the same value of m. Add to that rec
Re:clear as mud (Score:2)
I’m one of those who (mostly) welcomes expensive gasoline as that is exactly how the free market works. $5/gallon improves the value equation of a lot of other energy sources and strategies. I do think steps might need to be taken to buffer the pain of the market correction so that we don
Re:clear as mud (Score:2)
Yes, percent profit, what denies that?
My point for that paragraph was that if someone does something, and that something becomes worth a lot more money than it used to be, then that party is in a position to make a LOT of money. This shouldn't shock anyone, and should get consideration prior to assuming anything else. Just because GAS is expensive, doesn't mean that it isn't still driven by the price of Oil, and it doesn't mean that there isn't a fair market to buy, sell and trade oil through.
And..
Re:clear as mud (Score:2)
Where I agree with that in concept, my understanding of Adam Smith's invisible hand is that a sudden rise in prices is usually more a sign of a breakdown someplace, either in the supply chain or in the politics making the market less fair, and by extension, less free. I think we're experiencing both right now- 3/4ths of the price can be attributable to oil prices, which are experiencin
what's the profit per barrel for oil companies? (Score:1)
I was going to write a JE on this topic myself, but you've covered all the points except the profit per barrel, so you saved me the trouble
The only thing is that in my JE, I would have pointed out the problem being, at its root: government.
And now, having created the problem, government is ready to jump in and "fix" it.
*rolls eyes*
Bend ov
Re:what's the profit per barrel for oil companies? (Score:2)
That sounds like a completely out of kilter number. Let's do a little envelope calculation. We know oil was profitable, at one time, at $20/barrel. Oil is now selling at $70/barrel. There are 50 gallons in a barrel, and we've had a $50 increase in profits, which would suggest that the price has gone up $1/gallon, pure profit. But that's
The one thing you missed (Score:2)
Re:The one thing you missed (Score:1)
"The word commodity is a term with distinct meanings in business and in Marxian political economy. For the former, it is a largely homogeneous product, whereas for the latter, it refers generically to wares offered for exchange."
I suppose you're suggesting that instead of consumers
Re:The one thing you missed (Score:2)
Even for the business use of the term commodity, that's not always true- the price goes to whatever is the balance between supply and demand, which is not neccessarily LOW by any measure of the term.
"The word commodity is a term with distinct meanings in business and in Marxian political economy. For the former, it is a largely homogeneous product, whereas for the latter, it refers generically to ware
2nd reply (Score:2)