5/12/07
Who sets gas prices in the U.S.?
Editor's note: Part one of three
By STEPHEN H. SUTHERLAND
During the past year or two record profits have been logged by the major oil companies, yet if you ask why, they claim it is just the nature of the business. Severe weather, wars, terrorist attacks, supply and demand—so many reasons, so many variables can affect the bottom line. Here in Traverse City we can see how the weather affects the farmers; lack of rain, too much rain, late frost, all of these weather conditions can impact a farmer's bottom line, but in a much different way. Unlike most businesses, the oil companies have figured out a way to make a profit each time adversity hits, and the worse the crisis or the threat of a crisis, the more (it would seem) they make!
Major oil companies such as Exxon-Mobil claim they do not set the prices and they do not control the market. I must disagree to a point. Exxon-Mobil operates in nearly 200 countries or territories, exploring for and producing oil and gas. Exxon-Mobil's oil and gas fields, both domestic and abroad, produce more than 4 million oil-equivalent barrels per day in 24 countries including but not limited to the U.S., West Africa, Saudi Arabia, and Australia. Exxon-Mobil has interest in 46 refineries in 26 countries, more than 25,000 miles of pipelines and 45,000 gas stations, under the well-known brands of Esso, Mobil and Exxon in more than 100 countries, making it the foremost manufacturer and marketer of petroleum products in the world. Exxon-Mobil definitely has price setting influence!
Let's pretend for a moment that with all these oil wells, refineries and pipelines around the world, Exxon-Mobil still has no influence. Let's discuss domestic oil. Forty percent of the oil consumed in America comes from America. Back in the 1970s it was profitable for the oil companies to produce and market oil in the range of $22 per barrel. So why is it that the major oil companies were recently charging up to $72 per barrel for domestic oil? Often they charge up to $2 per barrel more for West Texas Crude than for imported oil.
Please keep in mind that America has been subsidizing oil wells for many years. Americans are paying up front and in the rear, yet the government claims this is a free enterprise and it cannot interfere. Don't get me wrong, I'm all for profits. All I ask is that the major oil companies stop hiding behind catastrophes, crisis and the threat of a crisis, and just say, "Hey, this is America, I wanted more, so I took more. If you don't like it, buy a bike."
As you can see from this weeks price chart, the stations dropped 11 cents, due to cost decreases, but then cost of fuel actually regained nearly all it lost, squeezing the margins down from 21 cents to about 9 cents per gallon. Almost back to the 30 year averages.
| Friday | Monday | Tuesday | Wednesday | Thursday | |
| 5/04/07 | 5/07/07 | 5/08/07 | 5/09/07 | 5/10/07 | |
| Retail | 3.199 | 3.199 | 3.189 | 3.189 | 3.189 |
| Cost of fuel | 3.111 | 3.078 | 3.0184 | 3.056 | 3.102 |
| Margin | .088 | .121 | .1706 | .133 | .087 |
Once again I caution you, the cost of fuel is approximate and varies greatly from station to station or supplier to supplier. The prices quoted here also do not consider the cost of doing business, and is only a bench mark to demonstrate extreme fluctuations in margins.
Keep the questions and comments coming!
The Gas Man -