Shots Across the Bow

A Reality Based Blog

 

Gas Gouging: An Exhaustive Analysis:  Part 1-Where does the money go?

Gas Prices. Everybody pays them; most think they're too high. Some even accuse the oil companies of price gouging. Most of those making the accusation base it on recent news headlines about record oil company profits, high CEO salaries, and extravegent retirement bonusses. It's almost like somebody wants us to think that oil companies are gouging.

But are they?

For the next few weeks, I'm going to take you on an in depth journey through the price of a gallon of gas. We're going to look at everything about the gas you put into your car, how much each step costs, and who makes how much money. We'll also look at historical prices for oil, gasoline, and diesel fuel, and see how today's prices match up. We'll also look at how oil company profits and margins stack up with other idustries. Finally, we'll put all the pieces of the puzzle together, and then we'll be able to say for sure whether here's any price gouging going on or not.


PART 1:Where Does the Money Go?

Gas prices are certainly igher than I'm comfortable with. It seems like my wallet empties of cash faster than my tank fills with gas. If somebody's gouging, I certainly want to know who it is, and the first step towards identifying the bastard is to figure out just exaclty what I'm paying for. In order to do that, we need to look at exactly where the money goes for a gallon of gas. Since we have all the numbers for February of 2006, that's what I'll use. The numbers all come from the Energy Information Administration website, a government agency that tracks all the numbers we need to use.

Now then, according to Gas Buddy, the average price for a gallon of regular gas in Tennessee was about $2.13. So how much of that found it's way into the oil company's pockets?

Well, let's break it down. First off, we have to deduct the taxes. This is the easiest to track since it's printed right on the pump. Federal taxes are 18.4 ¢ and state taxes are 21.4 ¢. That makes the actual price of a gallon of regular gas about $1.73. This agrees closely with the EIA number of $1.773. We'll use the EIA number for consistency, since it's certainly more accurate than my rough interpolation from a graph. Still, it's nice to have a secondary source. Next, the wholesale price in Tennessee averaged $1.615 per gallon. That means the distributer and the retailer split about 15.8 ¢ profit per gallon, with the bulk of that going to the distributer.

Refiners paid an average of $53.49 per barrel of crude. Now, this is where it gets tricky. A barrel holds 42 gallons of crude, which means the refinery is paying $1.27 per gallon of crude. The tricky part is that the barrel of crude can be made into a wide variety of petroleum products, not just gasoline, so determining the actual profit per gallon of fuel is difficult. One rule of thumb is to assume a straight one to one relationship, one gallon of gas per gallon of crude. If the refinery pays $1.27 and sells it for $1.615, then their costs and profits are 34 ¢ per gallon. What we don't know yet is how much of the 34 ¢ is profit, and how much is cost. Every chart, every source I've looked at lumps together refiner costs and profits. However, with the exception of California refineries, which have seen their profits and costs skyrocket over the last year or so, the figure for refinery costs and profits as a percentage of the price of a gallon of gas has remained fairly stable as shown by this chart. According to API, refineries ran a profit margin of roughly 15 ¢ per dollar invested, so we can figure that 18 ¢ of the 34.5 ¢ is profit.

OK, we now have determined all of our profits;, so, who profits the most off a gallon of gas?





Profit per gallon
Refiner18 ¢
State Tx21.4 ¢
Federal Tx18.4 ¢
Distributer/retailer15 ¢


So, in Tennessee at least, the State makes the most off each gallon of gas, followed by the fed, the refiner, then the distributer and retailer.

The perceptive reader will notice that there's a piece missing in this puzzle. What about the producer of the oil? What kind of profits are they making?

That will be the subject of Part 2
Posted by Rich
84.5 miles • (3) Comments • (0) TrackbacksPermalink


***Due to Spammer activity, comments have been temporarily disabled.
Please contact us by email if you wish to comment and we will enter it manually
rhailey(at)shotsacrossthebow(dot)com***



I understand your commentary but something just doesn't add up.

Oil increased from 68-73 dollars a barrel. That is a 6% change.

Now looking at gas, It increased from 2.39-2.99 a gallon. That is a 25% change.

I am still a little confused to why that is so. Maybe you can clarify that for me.
Posted by Isaac  on  05/08  at  11:57 AM

This post presents a static picture of what a gallon of gas costs, and where the costs go; it's not a trend analysis. The links are all based on February of 2006.

As for your question, I'll track pricing trends and compare them in a future post. For now, all I can say is short term pricing trends are affected by a wide variety of factors, some of which affect gasoline more than crude. Without having more information, like timing, grade of fuel, and location, I really can't say anything more.
Posted by rich  on  05/08  at  09:50 PM

In other words game <a href='http://www.elcom-inc.com/internet-blackjack.html' rel="nofollow"> free internet blackjack</a> amount figure broadway?
Posted by internet blackjack  on  05/20  at  06:13 PM

Page 1 of 1 pages
Commenting is not available in this site entry.

Quote

Bible Verse of the Day

Monthly Archives