Big Oil Company–More Record Profits–I Told You So

Bookmark It Please-More Truth Coming

(From an earlier post) Herein lies the culpability of the big oil companies. This is where the journalists and congress miss the oil barge (boat) when drilling (pun intended) the execs about their excessive profits. When you see the business news and the price for a barrel of oil has shot up in the financial markets (futures), the oil companies seize this opportunity to raise the retail price almost immediately. Is this right? No! The price for that oil you saw on TV is not for the oil here today, nor for the oil in the tanker waiting to be unloaded at the refinery, nor for the oil just leaving Saudi Arabia. It is for the future oil sales. That price you saw today won’t really affect the gasoline that reaches the retail gasoline station for 30 days! That is where the gouging and profiteering is taking place. Selling yesterdays gasoline at tomorrows prices! It is immoral, unethical and moreover, illegal.

I wrote that yesterday and I can tell many people are not believing it. You don’t believe it? Look at the news today:

Oil surges $11 to record $138

Crude skyrockets in largest single-day jump ever as dollar slides and a Wall Street report predicts oil will hit $150-a-barrel within a month. http://money.cnn.com/2008/06/06/news/economy/

gas_prices/index.htm?section=money_topstories

That price is the July Futures price that is weeks away. But what happened to gas prices? At my stations the regular unleaded jumped an unbelievable .11 cents per gallon! And diesel .27 cents per gallon! In a few hours! And read this carefully: these new record prices set today on the futures won’t apply until July, weeks from now. But you’ll pay it now for the cheap, cheap (relative to todays price) oil they purchased last month. RECORD PROFITS AGAIN! woo hoo!

How long can we allow these countries, companies and speculators to suck the liquid asset we know (or at least used to know) as cash out of our country? Are not the politicians aware that foreign oil is wrecking what little is left of our economy? Am I over reacting? NO! The banks and financial sector is in deep trouble, the housing market (which incidentally affects every other retail/wholesale/manufacturing sector because there is no money to buy products) is in a tailspin and now we as a nation are disolving financially from within. We may be able to defend ourselves militarily but we are impotent when it comes to understanding what is happening financially to this country.

It’s time we demanded from our politicians action to stop the dependence on foreign oil, open drilling in this country, incentivize not the oil companies but the entreuprenerial companies to invest by taking the oil profits from the big oil companies and subsidizing new technology. Immediately start investing in new refineries, power plants, etc. Shale, coal, electricity and solar to name a few are areas we need to increase our technological advantage while there is still a chance. Before it’s too late.

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Where are the Cheapest Gas Prices?

Where are the cheapest gas prices?  Not here!  Do you want to know how the gas prices are calculated, who sets them and how the big oil companies are ripping you off?  Why are you satisfied just finding the cheapest gas when the price is 40% higher than it ought to be?  That’s sad.  Let’s find the cause of the problem and fix it.

TO UNDERSTAND THE PROBLEM. READ THIS STORY:

June ‘08-Who’s to Blame for these Gas Prices-The Truth?

Don’t settle for the cheapest gas prices when the cheapest gas prices are 40% higher than they should be.  Find out the truth as to why fuel is not cheap.  Click the gas price link above.

June ’08-Who’s to Blame for these Gas Prices-The Truth?

I read it on the Rush Limbaugh website and other respected commentators share the view: the problem we face is not with the big oil companies, it’s with ________ (oil producers, speculators, etc.). Are they correct? Partly.

Let’s examine the chain of ownership and the profit centers for oil. First there are the oil producing countries. They extract or pay one of the big oil companies to extract the oil and sell it on the market. Their control is limited to the market and what it will pay. Moreover, their control is based on production. If they raise production the futures market expects the supply to rise and the price falls. If they lower or maintain production in an ever increasing demand market the price goes up. They are partly responsible.

Then there are these somewhat invisible traders and speculators. They ‘bet’ on whether the price will go up or down based on market factors. This trading should be eliminated as it is nothing more than fuel for a fire that is artificially induced. They are partly responsible.

Next in the chain is the Big Oil Company. They pay the going price for a barrel of oil, refine it into products such as motor oil, transmission oil, gasoline and diesel fuel. For this discussion we are only going to talk about gasoline and diesel fuel. Once processed they use it in their retail gasoline stations, sell it to their branded dealers or sell it to each other under reciprocal contracts or on the wholesale market.

Herein lies the culpability of the big oil companies. This is where the journalists and congress miss the oil barge (boat) when drilling (pun intended) the execs about their excessive profits. When you see the business news and the price for a barrel of oil has shot up in the financial markets (futures), the oil companies seize this opportunity to raise the retail price almost immediately. Is this right? No! The price for that oil you saw on TV is not for the oil here today, nor for the oil in the tanker waiting to be unloaded at the refinery, nor for the oil just leaving Saudi Arabia. It is for the future oil sales. That price you saw today won’t really affect the gasoline that reaches the retail gasoline station for 30 days! That is where the gouging and profiteering is taking place. Selling yesterdays gasoline at tomorrows prices! It is immoral, unethical and moreover, illegal.

I have been told that the price you see on the market close is for a barrel of oil from a tanker that won’t reach the U.S. for 30 days. What does that mean? Well, when the oil company is processing oil under contract for, say, $90 a barrel that they bought at the price 30 days ago, and when the price today, 30 days after their purchase at $90 a barrel is at $130 a barrel, they raise their price to the $130 a barrel price. You are buying yesterdays $90 oil for todays $130 price. The big oil company is making a whopping 45% added profit on the backs of the consumer. This results in record profits for the big oil companies. Yet when I see the execs before congress they just talk about ‘pass through’ increases to the consumer where they are only the middle man. What a load of bull. And no one presses them for the truth!

Is this illegal? I am no lawyer (thank God) but I can tell you this. Testifying before congress that your company is not gouging but only passing through the oil increases is definitely illegal. Why do we stand for it?

Hey interviewer: ASK THE HARD QUESTION. IF YOU ARE JUST PASSING THROUGH THE INCREASE WHY ARE YOU SHOWING RECORD PROFITS QUARTER AFTER QUARTER? The answer is quite simple really: the consumer is paying record prices so the oil company can make record profits.

Immoral, unethical, illegal? What do you think?

Who Sets the Gas Prices In Individual Gas Stations?

You Think It’s The Owner?  Think Again.

Are you tired of getting ripped off at the pumps?  Would you like to know who is responsible for this ripoff?  You will be surprised to know how the big oil companies manipulate the prices of fuel.  Read this from Wikipedia:

“A current issue is whether the petroleum industry has engaged in profiteering during a time of catastrophic weather events and political unrest. The oil industry has responded by outlining their extensive costs, market uncertainties, and public education efforts with regard to industry background, supply and demand, and how the system of commodity futures affects pricing. Industry supporters and many fiscal conservatives have supported the industry as an example of free market economics. Industry detractors have focused on specific profit reports and attempted to outline allegations that the oil industry has utilized unrest to achieve unjust enrichment. Nevertheless an investigation by the US Federal Trade Commission has found no illegal market manipulation to raise the price of gasoline in the US.^“

I believe this is several years old but it still applies today.  Of particular interest to me is the statement that” an investigation by the US Federal Trade Commission has found no illegal market manipulation to raise the price of gasoline in the US.”

How extraordinary are these comments ?  They should ask those of us in the industry how the big oil companies manipulate the price of gasoline so it’s prices artificially high.  I’m going to explain to you how they do it.  In plain English.

First, a word about margins.  The average fueling station in my market area under normal conditions expects to make a profit margin of around $.10 a gallon on gasoline.  Some make more, some make less.  One of the greatest problems in a time of rising fuel costs is the use of credit cards.  Currently, my credit card costs average around 2.3% of the sale.  Do the math.  Gasoline costing $4.50 a gallon with a $.10 profit margin has a cost of around $.10 per gallon for the use of a credit card.  I’m not kidding.  Those of us who accept credit cards for gasoline pay nearly all of our margin just for the cost of the use of a credit card.  The good news for us is bad not everyone uses credit cards to buy fuel.  The bad news is, as the economic recession continues to get more pronounced, more and more people are using their credit cards for fuel and other consumptive purchases.  So that means, if 50% of my customer base uses credit cards to buy fuel and 50% pay for cash or ATM cards, my $.10 per gallon profit becomes .05 per gallon.

Now enter the oil company.  They testified before Congress and the FTC  that they have nothing to do with gasoline prices at the individual gas stations.  They say the individual store owners are free to set any price they wish.  That’s capitalism!  How good that sounds!   But here’s how it really works.   Every day my oil company tells me the price that I will have to pay for gas that very same day within just a few short hours of the notice.  For example, if my price today from my supplier goes up five cents per gallon and according to my summary above, my profit is five cents per gallon, what do you think I have to do?  Sure, I am free to set the prices I wish.  I could give the gas away if I want to.  But how long would I be in business with business decisions like that?  True, when the prices come down I can try to recoup some of my losses by lowering my price slower than my cost reductions from my supplier.  But that is far less profit than these increases cost.

So, here’s what happened to me today, for example.  My competitors are selling their fuel for $4.17 per gallon.  My  price is $4.17 per gallon.  I get a notice this afternoon that my cost is being raised nine cents per gallon at 6 p.m. this evening.  What do I do?  I can lose my shorts or raise my price.  But what about the competition selling their gas nine cents lower than my price?  They pick up some extra volume.  But then an interesting thing happens.  When their big oil company supplier sees that my price went up they raise their price to take advantage of the situation.  That’s capitalism, right?

Wrong.  Because every day the big oil companies get shopping reports that tell them what my price at the pump is and what my competitors price is.  And then they determine what to do to my prices this evening.  And you naïvely thought that the price was fixed at all the gas stations in the region!  Actually, the prices in a 5 mile radius can be set at 20 different costs based on what the big oil companies term, the market area.  This is what benefits them the most.  So back to my competitor across the street.

When his big oil company supplier sees that his price is nine cents lower than the competition across the street, they raise his price nine cents.  Can you get a picture  of how this works?  Understand that there are only a handful of big oil companies suppliers.  So what they do without meeting to discuss it (because this would be a clear violation of the FTC and SEC rules) is to raise the prices because they know that their buddy oil supplier across the street will follow suit.  They are manipulating the gas prices.  What part of manipulating don’t you understand?

In the years passed there were things called gas wars.  One big oil companies supplier would decide to sell more gas and they would call their dealers and tell them to lower the price thus and thus and you would have a gas war.  The competitors would follow suit and you the consumer would benefit!  And guess who at the reduction?  The big oil company!  But they are smarter than that today.  They just simply raise the price arbitrarily many times based on some piece of news like these skyrocketing price of a barrel of oil and the other big oil companies simply follow suit.

I’m sorry this is so complicated but it really is simpler than you think.  If five of us had apples on the street corner to sell and use sold yours for a quarter and I lowered my price to $.20 you would pretty much have to compete with me all things being equal.  Capitalism would flourish, the consumer would benefit in the marketplace would take care of itself.  But what if all of us apple seller’s got together and decided secretly not to compete but to sell the apples for $.50 each?  If you wanted an apple you would pay the $.50.  That’s called a monopoly.   That’s illegal under the Fair Trade Commission rules.   That’s exactly what’s happening with the oil companies.  Only they didn’t meet to discuss this (that I know of), they simply observed the actions of the others as the market place tightened and there were only four or five big oil companies and the rest fell into place.  Trust me when I say this: there is no competition in the oil business.

The Truth About Gas Prices-How The Oil Companies Are Ripping You Off

Want the truth about the oil companies and how they are ripping you off?  Want to know why the price you pay is not as cheap as it should be?  Want to know who’s responsible for the high prices of fuel here in the United States today?  Want to understand the fraud within the industry?  Then continue reading this post.

I have had it. I own and operate gas stations and I am tired of the manipulation by the oil companies relative to gas prices and how they are ripping off the American public.  I am tired of watching interviews on the news channels where the executives of the oil companies who are ripping you off dance around the questions and never get put on the hot seat to explain how things work.  It’s fraud, I’m sick and tired of it and I’m not going to take it anymore.  You can read about me in the about section above if you care to.  Otherwise read on.

In the coming posts I will explain in detail the inner workings of the gas station business from my perspective.  I will answer all your questions, truthfully to the best of my ability.  I will not rip you off like the big oil companies and their gas prices.  You will hear how the pricing is determined, what the gasoline margins really are, and the profit that is made on a gallon of fuel at my level.  You will understand why the free-market system works to avoid fraud and rip off in our country and why the big oil companies are not obligated to follow the same rules relating to oil and gas refining and selling.

Why am I doing this?  As I said earlier I am fed up with the big oil companies and their lies, or more specifically, lack of the truth.  The oil companies have been manipulating prices in the United States for some time with complete immunity from the FTC.  Why has this fraud, that is the ability by the big oil companies to manipulate the price of oil and gas, to cheat consumers out of cheap fuel been allowed to happen?  Read the following posts and then make your own decision.