Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Don't Blame Me, I Voted For Kerry -- Ignore unavailable to you. Want to Upgrade?

To: sea_biscuit who wrote (78370)	7/27/2006 11:58:50 AM
From: TimF	Read Replies (1) \| Respond to of 81568

If gasoline was priced at half of today's levels, without any lowering of the world oil price or gasoline taxes, refining, distributing, wholesaling and retailing gasoline would be done at a large loss. If some "expert" said anything different than he's either lying or he doesn't know what he is talking about. I suppose if you look at the oil fields owned by the big oil companies, find the fields that produces the "lightest", sweetest" crude at the lowest prices, take the production costs from that field, add to that the cost of producing basic gasoline (with no special blending requirements) and then sell the gasoline in a state with low gasoline taxes, it might just be possible that there is some profit through the whole chain, with losses at the refinery, wholesale and retail levels made up by profits in production, but I'm not really sure this would be the case, and if it would be the profit wouldn't be all that decent. In any case this profit is largely irrelevant. If refining, wholesaling, distributing, and retailing gasoline operates at a loss consistently than companies will exit that market, or at least not invest in its maintence and growth, until the costs for gasoline go way back up do to less supply from refineries and less competition in retail and wholesale markets. Refining, distributing and retailing gasoline are activities that have costs. Companies aren't going to make the capital investments and pay the operating costs of these activities as a charity. Also there is the fact that a lot of the oil controlled by the big oil companies isn't produced in the lowest cost fields or isn't light sweet crude, and isn't refined without any complex blending requirements, or sold as gasoline in states with relatively low taxes. A lot of oil has to be bought on the world market at something like $70 a barrel. That's around $1.70 just to buy the crude. Then there is the cost to transport it across the world, refine it, distribute it, and sell it, add in close to 50 cents per gallon in taxes, and all the interest costs and corporate overhead. Anyone selling gasoline at 1/2 or even 2/3rds the current price would be taking a bath in this scenario. Just look at he margins in the oil business. Exxon Mobil had better margins than many other oil companies but its profit margin was 127th out of the Fortune 500 in 2004, and 2004 was a good year. Its margins are unexceptional even in the recent good years. Its profits per employee do not stand out among large companies. washingtonpost.com It did slightly better in 2005 but was still only 116th out of the Fortune 500.