Policy and a Pint: The Price of Gas

I've seen too many gas stations simply close down due to lack of profit to believe that the profits are theirs to reap. In addition, I know a man who runs several stations who told me that the price at the pump actually has nothing to do with the barrel prices we're always hearing about although this argument is constantly put forth.

The oil companies...all the way.

The government! Because they get a fixed amount of money per gallon sold! So if gas it retailing for around $2 a gallon, they get the same dollar amount per gallon than if gas is selling for $3 a gallon.

I've heard that many gas stations actually make their money with the convenience store factor: the candy, the soda, etc. Sort of like a concessions stand for your post-gas-up needs.

Do the oil companies and government need to make that much? Yes, I really want to know what you think.

The independant refineries too! A good share of the gas produced is not refined by the big oil companies themselves. So firms like Flint Hills, formerly, Koch, get paid on a contract basis to refine oil by the gallon, not a percentage of sale price. So if gas is $2 bucks a gallon or $3 bucks a gallon, they get paid the same.

Because each state has their own state mandated formula for oxygenates, there is little competition between refineries for supplying specific formulas for gas. This is a huge reason why the price of gas fluctuates so. If more states could agree to mandate the same requirements for oxygenates, this would decrease the price over time and cause less fluctuation.

No one bitched when the oil companies were a bad investment in 1997-2001.

It's a commodity business folks. Same way with investing in gold, silver or real estate. The oil companies have oil reserves and contracts at all dollar amounts for proper diversification. Their investment has gone up.

So Hugo(Julia), you want to tell the oil companies how much they can sell gas or oil at? What next, corn? Coffee? Penicillin? Milk? Cars?

*grin* That's an interesting grocery list you have there Gary. That would probably be the next question, wouldn't it?

Yup, not much of margin on gas for the retailer. They want you to buy chips and pop.

It's also tough for small stations to get out of the gas business also. The regulation on what to do with an abandoned underground gas tanks is huge and costly. So, you can't make any money selling gas, and you can't afford to stop selling gas, so the government and the oil industry profit.

The social engineering type and socialists think that they know what's best for people and don't trust individuals with making choices in their best interest and the marketplace determining the allocation of goods and services.

So Can the U.S. government have a positive role in controlling price of gas, or does their involvement make matters worse?

Depends what your meaning of positive is. Positive meaning lower price? If it sells for a lower price, do we force companies to sell below their costs? Like electric companies in California? Do you limit the price so that no one wants to be in the business, like flu vacinnations? Just some great examples of government making things worse instead of making things better.

Why do people think the government must step in on this? Or any other so called "crisis"?

when the price gets to $4.59 let me know.

Actually no-one is really making much money on retail Gasoline sales.

The value of the dollar in now worth 72 cents against the Euro, 49 cents against the Pound, 121 cents against the Yen. Why are you concerned?

Yes, it's astounding to me that folks don't understand or forget that the prices of Houses, Cars, Trucks, Oil, Gold, Silver and other things are tied to the value of the dollar.

I found the oil execs comments interesting a few weeks ago when he said why should he spend money on a refinery to make more of something that the government wants people to buy less of. Kinda makes sense.

We don't have enough refining capacity. The environmentalists don't want more, and now the oil executives don't want any either. So now both are to blame. We can flatten the demand curve for oil, but it will always be rising in the near and distant future. We need more refineries.

Short-term, the government could do direct pricing or rationing if they wanted, just invoke some war powers. Oh wait, I suppose that might require an official declaration of war? The horror!

We do need more refining capacity, and we shouldn't have refineries in all the vulnerable locations they're in now, along rivers and coastlines. But building refineries takes many years. Something else that could help, considering the number of recent breakdowns possibly due to lax maintenance, is to put government inspectors on-site at these places. We've got USDA inspectors at meat-packing plants across the U.S., so why don't we pay as much attention to refineries which spew out chemicals that affect our health and are also so vital to our national security?

Of course, the crazy pump prices in the Twin Cities can be traced to the presence of Marathon/Speedway/SuperAmerica. They take an unusual approach to retail pricing, which causes all sorts of fluctuations. Ironically, they don't play this game with diesel, so while gas prices might climb and fall 20 cents in a week, diesel might only budge a tenth as much. It might be possible to define their retail approach as something illegal, but we might be stuck with it.

Anyway, I really just want the government to take the long view, strengthening fuel economy regulations and actually making true efforts at developing energy alternatives rather than simply bowing to the corn lobby on ethanol and avoiding everything else. It would also help to sit down with other governments and come up with a more unified set of safety and emissions standards around the world, which is one major reason why we can't get some of the more frugal vehicles in Europe and elsewhere (some should justifiably be kept off our shores, but others are very safe and clean).

Why don't we just put the refineries in Mexico?

Oh, they say that they don't want them either.

Well then what about Canada?

Mexico and Canada have their own refineries. Refineries work best when closest to the demand for fuel. There are a great number of refineries in the upper east coast and our southern border, so that argument doesn't make sense.

The question is worded, I guess, so nobody points a finger at the folks flying by me at 70-80 (or even 60) miles per hour for being the primary reason why the price or gas is so high.

The price of gas would drop like a rock tomorrow if everyone slowed down a little, and sacrificed, say, 30 seconds to 2 minutes to do so. But that would require sacrifice and that should be a subject for another PnP: Why are we a people that don't believe in sacrifice?

Why do people think the government must step in on this? Or any other so called "crisis"?

That must mean the government ought not to "step in" on a woman's right to have a safe abortion, right?

Refineries work best when closest to the demand for fuel.

Let's build 'em in the suburbs boasting the highest numbers of SUVs and Hummers!

//Why do people think the government must step in on this? Or any other so called "crisis"? //

//That must mean the government ought not to "step in" on a woman's right to have a safe abortion, right? //

Or law abiding people to own a handgun and defend themselves with the "castle doctrine". Right?

You didn't answer my question, Gary.

I see you're a member of the National Rifle Association, so I'm not surprised by your response, and you shouldn't be surprised by mine, when I say "Right - but only if we can guarantee that ONLY law-abiding, mentally healthy people own guns, and guarantee that they will NEVER break the law or become mentally unstable in the future."

All prices are relative, and compared to what gasoline offers, and what alternatives we have, it is dirty cheap, even when it hits $10/gallon. As soon as we EXPECT $10/gallon gasoline in 5 years, we'll get off our fat butts and do something about it - whether it means buying a smaller, more efficient vehicle, or riding a bike or mass transit. The government CAN help by resetting the expectations "Fuel prices WILL RISE - deal with it now or deal with it later." I think people will say "Let's do something now", and then you can open the discussion to raising gasoline taxes, funding research, and improving mass transit so people who choose NOW can live without driving a car everyday.

VP Cheney said "Conservation is a personal virtue." and "The American way of life is nonnegociable." I won't debate either statement, except to say I agree personal responsibility is what all freedom is about. The government can't save us from our excesses, and the future of privledge depends on good stewardship of whatever resources we have power over. Those who have the means and motive to face problems now will be the leaders to those who wait for the next crisis to whine.

A good article about the price of gas and what refining capacity has to do with it.

http://www.nytimes.com/2007/07/22/business/22refine.html?ex=1342843200&en=06ae66d28084d47c&ei=5124&partner=permalink&exprod=permalink