One other thing, when you look at their reported profit percentages, keep in mind that some of the things they are writing off is just obscene. They even write off capital expenditures of huge amounts, that should be amortized over several years. Plus, there is no pressure to control costs. In fact, just the opposite, it's rolling in, so spend it!

 

I still like the stunt they pulled here BEFORE hurricane Katrina actually landed ashore. Gas went to $1.30/L from $0.95/L I'd say in one afternoon. In places like Detroit later that evening they were talking about prices expected to rise in the coming days and weeks. Hummmm, stupid excuses? Who got crapped on for that? The consumer because gosh darnit, we dummies just HAD to go to work somehow!

The quote makes sense yes, but translate that to main street. I don't care what the profit margins are, someone is making unjustified price hikes and it goes directly to my wallet based on media speculation and expected turbulence in the middle-east. C-mon, there has been turbulence there for so long it's in the Bible. Severe weather has caused profits too. I love it when all these huge hikes started really spiking and the oil companies were flaunting record profits, I WONDER WHY!!!! I say stop going to the pumps where they use foreign oil, there is a list of who does and doesn't and I think BP is one that doesn't, Sunoco too. Maybe they'll realize more refineries can help the problem.

 

For quite some time I have felt that our true power lies not in our vote or voice, but in the dollars we spend. If we can shift the manner in which we apply our hard earned dollars, then the big companies have no choice but to cater to us. It is vice versa now in that we completely have grown dependent on corporate America. I should say the masses have, and we do enjoy a quality of life far superior to much of the world.
Margin is the bottom line. If the oil companies are still operating on an 8% margin then the rise in the cost of crude is not their fault. It is the speculators that buy for investors that continue to drive up the price of crude, plus the demand from china and india who will soon surpass us!.

It is time for alternate resources...period.

 

Ahem... We import a very large amount of refined fuel to keep up with demand.

I do agree that oil companies are doing just fine financially with the amount of fuel they are processing. (As long as they are able to maintain their profit margin.) However, there IS to their financial benefit to refine more though. Especially in the diesel market.

 

I have to agree with you Jim. Profit vs profit margins is not the only issue here. Maintaining a steady profit margin is harder when there is competition. Big oil can just raise their price, continue to waste money, and pass up opportunities to become more efficient within itself, but only because they aren't going to lose business to some upstart with a couple of new refineries, who wants to take away some of the big guys' market share.

 

We do have other options with fuels, but most people don't use them. I know of people with 100% solar houses, and they even profit from selling excess to the power companies. We could all drive smaller vehicles and use more efficient appliances easily, but most people don't even do that. Though it would be hard for most to become 100% self sufficient, just about everyone could make major changes. We just choose more often not to make changes.

It's really no different than food for most people. I doubt a person in a suburban area could legally hunt enough food to support a family, nor grow enough produce, etc. It's a choice we make based on our wants and greed, which feeds the wants and greed of others that run these huge corporations.



I agree that less government is better as long as we have free enterprise. If it was really gouging and people were stretched thin, they would make changes and some of the corporate oil giants would reduce profit margins or fail in which case someone else less greedy would step in and produce cheaper oil and it's byproducts.

 

My main clients are refineries and petrochemical plants. What you say above is simply not true. Environmental regulations and fear of litigation are absolutely reducing the number of new refineries. Those are two of the reaons why many refineries are being expanded to increase throughput instead of building new ones. It is easier to expand an existing permit than it is to get a new permit. You won't hear about it because it isn't on the evening news very often!

Refining capacity in the USA is increasing as rapidly as the industry can support. There's actually a shortage of USA steel fabrication shops and of competent engineers to do the work required.


Some refinery expansions:
http://www.hydrocarbons-technology.c...villerefinery/
http://www.energy.gov/5761.htm
http://www.siteselection.com/ssinsid...h/pw040510.htm
http://www.allbusiness.com/energy-ut...5261579-1.html


Grim

 

That isn't legal under current tax law. I very much doubt that the big oil companies could get away with it any more than GE could.Bull. There is still massive pressure to control costs. The budgeting process for equipment expansions is a VERY critical and time-consuming process.

Grim

 

The cost of oil is largely dependant on 2 major factors, the first is OPEC. Unfortunately the opec nations control and set production as they see fit. The US is not part of OPEC and the Majors are not owned by the OPEC countries. OPEC has 2/3 of the worlds known oil supplies, but only account for a little more than 1/3 of the worlds oil production. They control their production to raise prices and thus their profits. Look at what they make and it makes the Major Oil companies profits pale by comparison. Secondly, oil speculators also drive the price of oil up, not the Major's.

As far as the oil companies not wanting to build more refineries, why are they doing it then? There have been several that finally got approval recently. Why did they put so much effort in finding a place that would let them build, get the permits and spend the money to build them? The answer is simple, its beneficial for them to bring the cost of oil and gas back down. The high prices only drive the markets to bring about alternate energy sources and they know it. They bring the prices down and they'd slow the progression to other sources of energy, which allows them to continue to operate for much longer, and make more money in the long run. These guys aren't stupid.

If you stop and think about it, they invest 10 billion dollars to make a return of 10.8. Not really all that much, most businesses couldn't survive on that low of a margin, fortunately for us these companies are large enough and well streamlined enough to be able to make it work.

Cost of Gas:
42 gallons in a barrel of oil.
At $100/barrel it costs $2.38/gallon just to buy.
The cost of refining is about $0.48/gallon. Total $2.86
Federal and State taxes combined average $0.42/gallon. Total $3.28
Now add cost of transportation of the fuel and a few pennies profit for the Gas stations it brings the total to almost $3.50/gallon which isn't too far off what we are currently paying. Its slightly less due to the fact we have to purchase refined fuel from other countries.

 

Here's a post I made some time ago that might be applicable here.


This is a more complete answer to “Why does oil cost so much more now than it did just a few years ago?”
First things first, we all know there is a finite amount of oil in the world. It is believed to be around 6x10^12 barrels. Of which we’ve used about 1x10^12 leaving 5 x10^12. At current usage rates this gives us about 140 years before we run out. We are currently producing 1 x10^12, we believe we can produce another 1 x10^12, leaving 3x10^12 of which we are not sure how to produce.
The reason we currently cannot produce half of the worlds known oil reserves is two-fold. To understand why we must first have some knowledge of the composition of a reservoir or “pool”. The term “pool” is misleading since the common misconception is that oil is contained in free flowing underground lakes. It is not. It is contained in the pores of sedimentary rocks (usually sandstones or limestones). The amount of pore space is a function of the type of material that formed the rock, the geometric packing of the sediments, and the pressure exerted while forming the rock. In order for fluids to flow out of the rock, these pores must be interconnected, a concept known as permeability. These rocks are under pressure and as such when a well is drilled the fluid tends to flow toward the well bore (which is at a lower pressure). This method is known as primary recovery.
Primary recovery is very inefficient. It typically only retrieves around 20% of the original oil in place (OOIP). This is the cheapest recovery method though, and the one that we’ve been using primarily for the last 100 years.

Once a well no longer produces from the primary method, secondary methods are employed. The typical well drilled today will not produce unless secondary methods are used from the very beginning. The methods used involve fracturing formation or acid jobs to improve permeability, pumping units, etc. These methods can get another 20% or so of the OOIP, but at a slower rate of production.
Once the well no longer produces tertiary methods can be used in certain circumstances. These would be water flooding, CO2 injection, steam and bleed, etc. These will again allow us to get another 20% but also at a slower rate of production.
If you’re following along with the math this leaves us with nearly ½ of the OOIP still in the ground, of which we currently have no economical means of producing.
The second reason we cannot produce ½ of the worlds known supply is that it is currently in either places that we are incapable of drilling (i.e. deep oceans) or the oil is not economically recoverable such as tar sand or if the permeability is too low that current well stimulation methods are ineffective.
As I said before we’ve used up virtually all of the easy to get to oil. There is no more “good old days” of drilling a “gusher”. All the oil we can get now is requiring us to use more technology, more man power, more research, and ultimately more money to retrieve. This is only going to promote the growth of the major oil companies who have the money required to search for and produce oil. The investments are getting higher and higher. People get upset over $100 billion dollar profits, what they don’t understand is that they invested $10000 billion dollars to make that much money.
My great-grandfather started “wildcatting” around 1940. He made a great living drilling for oil since back then it was relatively easy to find and produce. Today, it would be impossible for an individual to be able to do something like that. Way too much money involved, way too much research and technology for just one man.
So to answer your question, “Why is oil so much more expensive now than it was just a few years ago?” Because it is far more costly to produce.

 

Are you saying that if a new refinery was considered that it would be profitable, the oil companies wouldn't build one because of regulations?

 

Well why don't you come to Washington state and tell my fake governor that? She will not allow refineries to be built. Aplication aplied for.... aplication denied. She also won't let the number of oil tankers increase in the puget sound. But... let me see... The oil companies don't want to bring anymore ships here right? WRONG! The story is much the same all over the country. regulations won't allow refineries to be built.

 

I'm saying expanding existing refineries is both faster and more profitable than building a new refinery. Environmental regulations and fear of litigation help push the decision towards expansions rather than new facilities. Obviously, there are many factors in that decision, but regulations and litigation are very significant costs/risks.

http://www.eia.doe.gov/emeu/aer/txt/ptb0509.html

The document above lists refining capacity from 1949-2006. Notice that over the last decade, refining capacity is generally increasing while the number of operating refineries is actually decreasing.

Grim

 

Interesting stuff, thanks for the info!

 

Whatever the case, this whole oil thing is gay and needs to be fixed. Not forgetting other things that also have risen out of control that see less media. It's odd how everyone and everything out there is driving the amount we make down only to drive prices up. If it was hard to afford before, do they think it's any easier now? Consumer spending is down? Boo hoo, I wonder why. There is a common denominator here and instead of rationalizing high prices, sick the root of the problem. I wish I knew what it or who it was but I'll bet it's a foreign trade thing.