Originally posted by: TheAdvocate
Originally posted by: Minjin
As I always say when this topic comes up, if you truly believe that the oil companies are absolutely raping the consumer, then buy stock in those companies and share in it. The extra cost of gasoline is a pittance compared to a well chosen investment.
But it doesn't offset the extra cost of milk, beef, and damn near everything else that has ballooned in price as oil prices have soared. 90% of my problem isn't with what I am paying at the pump, it's what I am paying for everything else. I have a toddler. 6-8 mos ago when he started drinking milk, I could find a store brand gallon for about $2.90. Now it's $4.25. In a matter of months. And then these guys post record earnings??
BTW, not addressed to you, 'cos I don't have time to find the right post, but the problem here is that Exxon's Gross Margin has increased every year since 2004 (I believe it was up to 23% in 2006, up from 20%), and I was waiting for them to post their financials to see if it increased again in 2007.
I ran the math last year, and the margin increase was "only 3%", which translated to SEVEN BILLION DOLLARS OF
EXTRA GROSS PROFIT IN 2006 alone. $7,000,000,000.
Last, to the guy who spit out the other hackneyed comeback "no one is forcing you to buy", see my comment above. Oil is the lynchpin of our economy. I submit that it is nearly impossible to not pay for it everyday. The only way would be to stop living, which isn't death, right away anyway. It's like a bottom up tax on everything.
And, even if it didn't permeate everything, find a practical substitute for it. Something that is as useful, as plentiful, and as available. (hint: it doesnt exist - but if it does and you know about it - rush to patent/market asap).
Oil is not a free market
Oil Co.'s are oligopies
Refined Oil is kept purposefully scarce to inflate prices (no new investment)
There is no true subsitute for oil
It is a slap in the face of every consumer in our society to continue to post record earnings based on increasing gross margins
/thread
No new refineries are being built because of the extreme cost and environmental regulations around building them. BP proposed an expansion and re-tool to its refinery in Whiting, IN. The public outcry was enormous over increased discharge limits, which litterally amounted to drops of additional pollution in a bucket. Refineries across the country are expanding, but such projects take a significant amount of lead time to come on-line. Plus, the price of materials and labor are skyrocketing, eating into the bottom line.
Crude oil clears on a global market, but trades for US dollars. Part of the cause of high crude prices is the de-valuation of the US dollar. A company like BP, Exxon, Shell, Citgo, etc, pulls oil out of the ground all over the world, and sells it on an open market. Exxon might sell oil to Shell, who sells their oil to BP, who sells their oil back to Exxon. It doesn't matter if Exxon runs crude produced by Exxon, because as a company Exxon sells their products on a world market. For instance, much of the oil produced in the mid-East doesn't make it to the US... it ends up in Europe, India, China, and South East Asia. The US runs a lot of material produced in South and Central America, the Gulf, Alaska, and Canada. For people who live in California, Oregon, and Washington... Most of the gasoline you put in your cars is derived from ANS crude (alaska north slope), not from Saudi Arabia. The point is, it doesn't matter who produces the crude or where it comes from in terms of price. Crude is a global commodity. If we want to drive cars in the US, then US refiners have to buy it and have to compete for the resource in the global market.
Another reason crude is so expensive is because global supply hasn't kept pace with global demand. China and India are hungry for crude oil, and this drives the price up. This fact has created a situation where crude is somewhat overvalued, but that will correct itself in time. Meanwhile, petroleum producers like Exxon are raking in record profits. It won't last forever.
Part of the reason gasoline is expensive is because crude is expensive. However, what most people don't know is that refiners don't set the price of gasoline, diesel, fuel oil, etc. Commodities markets set these prices. These markets are funny things in the short term, but in the long term the prices are set by supply and demand. No one in BP or Exxon wakes up in the morning and decides what to sell gasoline for... they sell their product for what the market will pay them, and they buy crude on the open market for what it costs when it is put in the pipe or offloaded the from tanker. In some cases refiners lose money on products. For example, several weeks ago unleaded regular gasoline cost less per gallon than West Texas (WTI) crude oil on the Chicago commodities market. As a result, refiners generally lost money on gasoline in the Chicago market. They made money on other products, like diesel, jet, and fuel oil, so their net margins were likely still positive, depending on the refinery configuration. In another part of the country, the refiner Tosco announced they were dialing back rates at some of their refineries because of sagging profits. Their refineries were likely running expensive crude to primarily produce gasoline, and since the gasoline market is really soft right now, they can reduce supply in response. Eventually the market will pick back up and they will increase rates.
Time for a short history lesson... in the 1990's and early 2000's oil was at a very, very low price per barrel. It's lowest was around $12 a barrel. Companies like Exxon, Shell, and BP, which are "integrated" because they both produce an refine petroleum, were posting small profits. However, these companies are divided into "upstream" or production, and "downstream" or refining business. Refineries were doing well to make a profit on the products they sold just 10 years ago. It was costing them more to buy $20/barrel crude than it was to produce the gasoline and other products from the crude oil. This was a very lean time for the industry, and money was not invested into expanding production capacity. Why spend money to increase production when you can't sell material for a profit?
Fast forward a few years and the market has finally normalized. Supply didn't keep pace with increasing demand because refiners weren't spending money on capital projects to increase throughput when they were lucky to turn a profit. We found ourselves in a situation where demand outpaced supply, the price of refined products increased on the commodities market as a result, and now refiners are making good margins on the crude they are running. Now that the market has adjusted itself and outlooks are good, refiners want to spend money on adding capacity. Along with BP's expansion, Shell-Motiva is adding 325,000 barrels a day of capacity at their refinery in Port Arthur, Texas. At least a dozen other projects have been announced. It took refiners awhile to realize that the current margin environment isn't a fluke, it is here to stay in some capacity for awhile. The thing is that these projects take a long time to complete. Just because gas prices are high now doesn't mean a refinery can be thrown together over night, or even over the course of a year. It can take 5 or 6 years to build a facility and bring it on-line. Plus, the investment is massive. These companies want to make sure they can see a return on the investment.
The Chinese government sets the price of gasoline sold in the country. As a result, refiners there slow down rates to minimum when they can't make a profit. In turn, this creates nightmares for supply in China. Fuel shortages, rationing, etc. It is a house of cards that cannot be sustained in the long term.
Putting price controls on crude oil will simply not work. Every other country without price controls would have demand satisfied first, then the US second (with the exception of locally produced crude). Price controls refined products would result in the same effect in the US as in China. Petroleum producers would rake in profits from production, but refiners would suffer. Refineries would cut rates to a minimum if they weren't turning a profit on their products. Some of the small "marginal" refineries would simply shut down. I am not joking. Businesses doesn't stay afloat when selling products at a loss.
Profit controls could help stabilize the price of gasoline and other refined products if we were to link them directly to the price of a benchmark crude. The one problem is that different refineries have different "kits", so some refiners would still make more profit than others. In the long run, I think this would reduce the incentive for development and expansion. I don't incentive would be eliminated, but definitely reduced.
For people who say that supply is being throttled to artificially increase demand, I have one thing to say to you: Take off your tinfoil hats. There were several refinery issues across the country in late spring and early summer of last year. This made the supply situation very tight in some areas and drove prices through the roof. The refineries that were cut back on rates due to issues would have LOVED to be at full capacity, even if margins were reduced. The reason is that if the supply situation was relieved, the margins wouldn't drop enough to offset the profits from running at increased rates.
summer gasoline costs more than winter gasoline. Seriously, it does. Winter blends can have more light components, like isomerate and butane, blended into the fuel, thereby decreasing their cost. Summer grades are regulated to be much heavier (40% decrease in vapor pressure) as compared to winter grades. Low vapor pressure material generally costs the refinery more to produce, and there is less volume material produced. Plus, gasoline demand is far higher in the summer. Combine tight supply in the refinery with increased demand and you have increased prices.
Also, refineries have to take equipment out for maintenence and inspection periodically. Generally these turn arounds are scheduled in the fall and spring, so as not to impact gasoline season (summer) or fuel oil season (winter). But guess what, accidents happen. Sometimes turn arounds take longer than expected because issues are uncovered when the unit is opened up. Sometimes units catch on fire or spring a leak. Depending on the unit and the configuration, this could shut down the whole refinery or severly cripple it. When issues like these crop up, it can take a while to resolve them. It can keep a refinery at reduced rates for quite awhile.
Just keep all these things in mind before calling oil companies "criminals". They are capitalist entities functioning in a capatilist society. If you don't like paying so much at the pump, consider buy a more fuel efficient car the next time you go car shopping. Consider living closer to work, car pooling, or taking public transportation. As a society, we have grown too accustom to having the government step in when we aren't happy. In this case, the oil companies aren't doing anything wrong. They aren't fixing the price of oil and forcing us to buy it. They are selling crude on a global market, and selling refined products on national commodities markets. If a company doesn't make money on the product they produce, they dial back production. This shouldn't be a foreign concept. No one buys high and sells low on purpose.
R
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