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Location: Allentown, PA

I'm a Christian wife and a mom to three daughters and two sons. I'm a member of the board of directors of EmPoWeReD Birth. In my "spare time" I'm a doula, and a certified childbirth instructor.

Wednesday, April 26, 2006

Outrageous gas prices

Tulipgirl brought up the issue of gas prices on her blog, and I started to reply, but my reply ended being, well, a blog post...so here it is!

Prices are as high in my area as hers. I paid $60 to fill up our mini-van today. Whenever I do this my husband will say "why did you fill it up, prices are going to go down?" But my reasoning is always that they are probably going to go up--at least that is what I keep reading, so I'm going to "stock up" now!

I've got mixed feelings about the whole thing. Obviously the prices hurt my wallet. But I do think the gas companies have a right to make a profit. From what I've heard, they are making around $.90 per gallon in profit. The gas I bought today was $2.87/gallon--which apparently is just about as low as you can find it in my area. With $.90 profit in that, it amounts to a 30% profit for the oil companies. And this is where people are being drummed up in outrage. 30% mark-up!!! How outrageous!!!

The cost of most consumer products includes about 30% advertising and 30% mark-up. So the gas companies are getting their mark-up. Maybe. I doubt it a bit. Why do I think that? Well because of the other costs that go into gasoline, namely crude oil and taxes.

The government taxes gasoline so heavily, that well over 20% of the cost of your gasoline is taxes. That may actually be why there can be such a variation in prices across the nation--why states that are very far away from the oil refineries like Wyoming and thus have higher distribution costs--have lower gas prices (about $2.50/gallon) than states with refineries in them like Texas (about $2.90/gallon).

Yes, I've heard it said in many venues that there is close to $1/gallon in taxes in the cost of gas (the most recent data I could find on the web was from 2000, and indicated about $.50 per gallon--varied state to state).

Crude oil costs $72 per barrel today according to the nice folks at CBS news. Now that doesn't mean much to me...how big is a barrel of oil? Looked that one up too, and found a reference that says it is 42 gallons. From which you get about 19 gallons of gasoline.

But wait, doesn't that work out to the gasoline costing more than $3 per gallon even before profit and taxes are added in? Nope. Because the 23 gallons of "waste product" are sellable products. Like mineral oil or petroleum jelly, which are widely used in the cosmetics industry. So lets assume though that the $72 per barrel cost for crude oil is evenly distrubted to each gallon of initial 42 (which means we assume NO waste from the crude oil)...thats still $1.76 per gallon.

And remember, the profit in gasoline is not all going back to the "big oil companies." Your local gas station needs to make some money to pay the employees--your neighbors who might like to be able to feed their families. The 11 o'clock news tonight (4/28) reports that the average gas station makes $.10 per gallon profit on a cash purchase--but that gets cut to $.05 when a credit card is used due to the credit card surcharges. Either way you slice it, $.10 per gallon of the cost of gasoline is going to the local station.

So even if you take the 2000 data of $.50 per gallon in taxes, and add to that $1.76 in crude oil cost, and $.10 for the local station, you come to $2.36 per gallon. That means there is only $.51 left for production costs, distribution, advertising and profit in that $2.87 per gallon gasoline I purchased this afternoon.

What happened to $.90 per gallon profit? It certainly has gotten eaten away. I really think that most of that $.51 is going to actual production and distribution costs.

That's right. I don't really think that there is a lot of a profit margin in gasoline. At best, there is $.51, which amounts to only a bit higher than a 15% profit margin. How many companies could stay afloat on a 15% profit?

The profit margin is in other products sold by the petroleum industry. Perhaps keronsene, jet fuel, I don't know. I tend to think that it is in the other "petroleum products" that are sold to industry.

For example, lets take baby oil. Its over 99% mineral oil...and mineral oil is what? A by product of the purification of gasoline from crude oil. The petroleum industry sells mineral oil to the cosmetics industry, which uses it as a diluent in MANY cosmetic products. Anyway...straight baby oil sells for $2.19 for a 4 oz bottle on Amazon. com. That works out to $70.08 per gallon!

Why isn't there a public outcry about the outrageous profit margin in the sale of mineral oil? I will submit that the price of gasoline is used by politicians (and the media, not that THEY have an agenda...) to whip the public up into a frenzy because it is a product that is used by nearly all Americans, and in large quanities. It's easy, because quite frankly, most Americans don't bother to think analytically about these things.

I know that a lot of fuss has been made about oil executive salarys. And when they make "tens of millions per year" as was reported in one venue about Exxon, that is troubling.
But how much per gallon are those salaries really costing the average consumer? I've tried finding out how many gallons of gasoline are sold per year. Can't find it. I can find that there are about 300 million people in the US. So if 30 oil company execs each had a 10 million dollar pay cut, that would still only amount to $1 per person in the US. That's hardly significant. Especially when you consider that I would estimate that my family of 6 is purchasing well over 150 gallons of gasoline per person in a year.

Now don't get me wrong...its not that I think that oil execs should still keep making these obnoxious salaries. I'm just trying to point out that those salaries really aren't affecting gas prices significantly. What they are more likely significantly impacting are the salaries made by "rank & file" employees at the gas companies.

In the end, I think that really the most important contributor to current gas prices is OPEC. Oh, well that and environmentalists who will not let us drill for oil on our own turf.


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