Gas prices on the way back up

[mikeesik]

How many wish that own their own businesses think that when management and employees slack along with profits, you would wish for some sort of devastation to your business/

Hell, then you can recoup any losses from now to the past by increasing the price of whatever you sell.
Unfortunately it doesn't work for private owners of business !
If I owned a refinery and wanted to raise profits, I'd burn some of it down.

[speedqueen]

There is a very clever game being played on this oil thing!! every one is after oil!

[widebody911]

Originally Posted by mikeesik

How many wish that own their own businesses think that when management and employees slack along with profits, you would wish for some sort of devastation to your business/

Every now and then computer component prices will spike, and the suppliers say it's because of a fire in a Foo King fab somewhere in China or somesuch.

[speeder]

California gasoline prices to surge after Chevron refinery fire - latimes.com

[sammyg2]

Originally Posted by mikeesik

But why is there an increase in price when something like this happens?
Does it help pay for the damage? Does it make people squander about buying fewer gallons and to share?
The fuel will be there from other refineries to gas stations.

I guess it only protects the fuel producer them/itself on continuing a profit that stays steady.
This has always bothered me.

Lots of misinformation regharding this and it only perpetuates itself. I've explained it many times here but haven't reachs folks or some just refuse to accept the truth.

THE PRICE YOU PAY AT THE PUMP IS NOT TYPICALLY CONTROLLED BY THE OIL COMPANY.
It's be nice if it was but it just isn't. The cost to produce is not directly passed on to the customer.

Here's the deal:
There are three free markets at work here: the crude supply, the wholesale fuel supply, and the retail price.
All three can influence each other indirectly but are NOT tied directly to one another.

Imagine you run a company who's main cost is a raw material. That material is bought and sold on an open market, similar to E-BAY.
You need to buy it, they need to sell it (crude).
They offer it for $100/bbl, no takers. your buyers counter with $85, no takers. they negotiate with counter offers until a deal is reached, and we're talking millions of gallons at a time.
If the sellers asking price is too high the buyers go elsewhere or play the waiting game.
If they think the price is going down in the next week, they wait. That can be a self-fulfilling prophecy.
If other buyers are willing to outbid you, the price goes up.
If they think the price is going to go up, they buy now as much as as quickly as they can.
If the price is too high to be profitable, they don't but at all or buy less, which affects the production of fuel.
But they have to make fuel to generate cash flow and to keep from going to jail, so there's only a couple percentage points of wiggle room in production.
If you cut production in order to manipulte the market price you go directly to jail and do not pass go. Believe me, there are folks watching your every move 24 hours a day and if your production wavers at all you better have a good reason.


Now onto production: you need to produce lots of product to generate cash flow, even though you lose money on that production 4 or 5 months out of the year.
The good months outweigh the bad in a good year.
Regardless you historically operate with a 1 to 2% profit margin so it's a very difficult envoronment to survive in. it's also the highest regulated industry there is, except for maybe nuclear.

So your buyers do the best they can to get a good price on the crude oil, and you process it into fuels. Many millions of gallons per day.
Your marketing people then try to sell it.

If you have some gas stations you can sell it there, but most refiners make way too much gas and diesel to sell very much of it through their own stations.

So you offer it up on the spot market for sale, e-bay again. You ask a high price, no takers.
You lower your price, no takers. So you cut some more until you can move that product. You NEVER get as much $$$ as you want for it, and the buyers NEVER get it as cheap as they would want, but the market conditions dictate the price.
The price you can get is based on three things:
1) The demand. How much are people buying?
2) The supply. How much are your competitors making?
3) Speculation. Do the marketing people expect the price to go up or down?
If they expect the price to go up in the next several days the buyers are more motivated to buy and the sellers are less motivated to sell.


Then the distributor sells it to the independent stations for as much as he can get.

The retailers sell it for as much as they can while meeting a pre-determined volume of sales. Some station owners have really complicated contracts with a supplier, some are free to do as they please.
If they think the price is gonig to go up they jack up the price and wait for the market to catch up. That's why the price goes up faster than it comes down.

But the oil companies and refiners typically do not set the price at the pumps.
Less than 10% of all stations are owned and operated by oil companies so even if they decided to jack up their prices they would only cut sales volume unless their competition followed suit.
yes, I'm sure there is collusion going on in some cases and places, and I'm also sure those people belong in jail. but for the most part the market dicates the price over the long haul. Temporary spikes are the exception.

If the independent oil refiners could control the price of gas and diesel you can bet they would not be making less than 2 or 3% net profit.

The major oil companies (companies that drill for oil AND refine it) make almost all their money on the crude oil they pull out of the ground and very little from refining it.
They opertate refineries to have an easy and stable outlet for that crude oil. But the majors are more than willing to walk away from a refinery.

Shell did it in So Cal in the 80's, selling off two of their refineries. They sold the third in 2007 and don't have a refiery in so cal anymore. Their So Cal stations are owned by Tesoro.

BP is trying to sell it's only california refinery, it isn't worth the hassle and money it takes to run it anymore when they can make so much more money just pulling the black stuff out of the ground.

You can bet that if any of the majors in California got a decent offer to buy one of their refineries they'd sell it in a heartbeat.


Another thing: gasoline is gasoline.
I paid $3.73 this morning at an Arco station.
Directly across the street the shell station (owned by tesoro) was selling the exact same stuff for $4.19, and people were buying it!

Here's the kicker: the shell gas was prolly made by tesoro, but might have been made by BP. The arco gas was prolly made by BP, but might have been made by Exxxon-mobil. You never know.

The gasoline specs nowadays are so tight there really isn't any difference between one refiner and the next, except for price.

Anyone who believes "you get what you pay for" has more money than brains when it comes to fuel.

[widebody911]

If you cut production in order to manipulte the market price you go directly to jail and do not pass go

How many people are in jail from this? I can just imaging two dudes sitting in Folsom Prison; one asks the other "So, what are you in for?" "I cut gasoline production to raise prices"

[craigster59]

Quote Sammyg2
"There are close to 1300 people working at that plant. Decent hard working people trying to earn a living and I'm glad they're all safe."

So when they work for Big Oil they are decent hardworking people, but when they work for Big Auto Mfg. they are "Lazy, slovenly union workers holding Corporate America hostage"?

[sammyg2]

Originally Posted by craigster59

Quote Sammyg2
"There are close to 1300 people working at that plant. Decent hard working people trying to earn a living and I'm glad they're all safe."

So when they work for Big Oil they are decent hardworking people, but when they work for Big Auto Mfg. they are "Lazy, slovenly union workers holding Corporate America hostage"?

NOW yer getting it.
Big difference between UAW and oil workers. HUGE. Ginormous.
We can discuss in PARF iffn you want.

[craigster59]

Originally Posted by sammyg2

NOW yer getting it.
Big difference between UAW and oil workers. HUGE. Ginormous.
We can discuss in PARF iffn you want.

No thanks. I'll just let Big Oil rape me at the pump and post record profits next quarter....

[sammyg2]

Originally Posted by mikeesik

If I owned a refinery and wanted to raise profits, I'd burn some of it down.

First, you'd end up in jail if you tried to pull that crap.

Second, if you did mess up your own production your competitors would profit from it not you, and you'd soon be out of business.

It does not happen. The people in the oil business do everything in their power to PREVENT that.

If you really want to dream up a cospiracy theory imagine this:

industrial sabotage.
If one company sent in spies to sabotage another company's refinery, the first company would make lots o'money from it.

That doesn't happen either but it makes a whole lot more sense than sabotaging your own refinery. Smart people do not cut off their nose to spite their face.

[sammyg2]

Originally Posted by craigster59

No thanks. I'll just let Big Oil rape me at the pump and post record profits next quarter....

Thank you so much for demonstrating to all of us the true meaning of ignorance.

You know absolutely nothing about the topic, you refuse to LEARN anything about the topic, and you refuse to let those facts influence your irrational and emotional knee-jerk response.
Ignorance is bliss and you obviously are one very happy SOB.

[craigster59]

Originally Posted by sammyg2

Thank you so much for demonstrating to all of us the true meaning of ignorance.

You know absolutely nothing about the topic, you refuse to LEARN anything about the topic, and you refuse to let those facts influence your irrational and emotional knee-jerk response.
Ignorance is bliss and you obviously are one very happy SOB.

Ignorance certainly is bliss. Just posting this, ain't going to PARF this thread up anymore. I'll leave the corporate preaching to you Sammy....
Chevron Announces $7.8 Billion in Q3 Profits, 2011 Profits for Big-Five Oil Companies Hit a Staggering $101 Billion | ThinkProgress



Chevron has spent nearly $7 million on lobbying this year, the fourth highest of oil and gas industries.
Chevron has contributed over $315,000 to federal campaigns n 2011, with 90% going to Republicans.
Chevron is sitting on $13 billion in cash on hand. Added together, the Big Five oil companies — BP, Exxon, Chevron, ConocoPhillips and Shell — are sitting on cash resources of $59 billion and made nearly $1 trillion in profits over the past decade.
Chevron currently ranks third in the Fortune 500 list of company profits, yet continues to receive billions of dollars in tax breaks paid for by American taxpayers.
Chevron’s Chairman and CEO John Watson received nearly $16.3 million in total compensation in 2010, an 85% increase from 2009.

[RWebb]

there are also speculators who distort the market

[intakexhaust]

Let's not forget the massive increase in tax revenue whenever the retail price hikes... gov. needs more ya know.

Hey sammy, good stuff you dig up but exactly what do you know about the UAW and behind the scenes at the big plants? I'd like to hear more.

[mikeesik]

Thank You -all- very much for the information . It's a very and could be a much much more interesting thread if more people chime in with questions and knowledge.

I am smarter today, than yesterday.
Thanks for the education. I will print out some of this and keep it in my files.

[Porsche-O-Phile]

While I'm sure that sammy knows more about the inner workings of the petrochemical industry than most here and knows more about the inner workings of fuel refining in particular than ANYONE here, his explanation is certainly skewed as it paints oil refiners, distributors, etc. as blameless and simply "along for the ride" on the ebbs and tides of the free market.

While there's truth to what he's saying, I'd love to ask the question, "how exactly did we get to this point?" There has been HUGE lobbying on the part of the oil/gas industry over the last few decades that has directly shaped our society and made us the nation of oil-dependent, greedy energy consumers that we are. This is no secret - the petrol industry has pushed us away from more sensible infrastructure development at every turn, predictably. It has made us glorify hugely inefficient methods of living and transportation, predictably. It has manipulated markets, predictably. It has manipulated public policy related to the production, sale and use of its products, predictably. Those little facts are conveniently glossed over or forgotten about in sammy's flowery-sounding explanation.

I have no doubt that there are a lot of free market factors at work in the operation of refineries, the production and distribution of fuel oil products, etc. However there is also a well-established history of corruption, manipulation, coercion, etc. The oil companies and their subsidiaries are anything but blameless, innocent victims weathering a storm of free market uncertainty. They have absolutely created a lot of it to benefit themselves and THAT has a lot to do with the problem.

We need to ask that hard question - "how exactly did we come to be so dependent on this stuff?" Then when one starts looking into answering that question, shocking answers begin to emerge. It doesn't take long before another question starts needing to be asked, which is "what can we do to change this?" It's right about that time that the angry, "I-need-anger-management-therapy", "Mister Hyde" persona takes over sammy and his ilk and we see them as defensive and furious defenders of the status quo, screaming up and down and pounding on tables about how the "stupid liberals" are at fault for everything (i.e. it has nothing whatsoever to do with a situation the oil companies themselves have helped create in the interest of historically stellar short-term profits over the years...)

This in turn leads one to ask a final question which I will end with, "if the status quo is so hard and so difficult for the poor oil companies and their affiliates, why do they resist change to the status quo so ardently?"

It'll be interesting to hear the response to this.

[craigster59]

Well put POP. I didn't mean tp PARF up this thread, but when sammy criticizes so many other occupations and industries as corrupt, thieving and a detriment to the America we know and love, yet always paints Big Oil with unicorns and rainbows, it gets real old.