Nicely written. I still complain about gas, but thanks for adding some perspective. very nice.

All of this math is interesting, though it oversimplifies dramatically by relying on "annual averages."

Here's some more math: Exxon/Mobil made 10.7 billion dollars in profit last quarter.

That's profit, not gross revenue, and that's billions.

Is it evil to make so much money? It depend on how you make it. The price of gasoline unfortunately affects the price of nearly everything else, since most things have to be transported hither, thither, and yon. Is $10.7 billion "profiteering?" Or a reasonable profit on a company that does a heck of a lot of business?

How much of that profit is on gasoline? Directly or indirectly?

I'm not simple-minded, and if the price of gas is reasonable, then it's reasonable. But it's hard to reconcile $10.7 billion with "cost of business."

Phil,

I must add that the federal government (forgetting the states for a minute) takes in MORE cents per gallon than the oil companies.

So when the pious congress critters get on their thrones and throw crap at a legitimate American business, well all they have to do is lower the excise tax if they REALLY cared about us Americans.

It's all a political stunt. Market forces control the price of gasoline and dear Lord I hope the congress critters keep their dirty hands off of it, even if, yes, I have to pay more at the pump. Get the government to be involved in deciding how much profit a business can make and you'll have a corrupt mess.

Witness the outrageous post office.

I'm sorry, but I laughed when I read "congress critters"!

If they got rid of the federal, state, and local taxes on gasoline, the price per gallon would be much less expensive.

Of course, government revenues would decline. But they could be made up in other ways, or maybe spending could be cut...

Nice article.

Hawaii's prices are unlike any other state's. Which again makes sense, because of the cost of shipping. (Except for macadamia nuts. They must be really cheap in Hawaii.) Even gas taxes make sense, in theory. The revenue is supposed to go to transportation-related government expenses. So the road user pays for road repairs.

Hawaii has an interstate. That still cracks me up.

But what would the crude oil cost if there weren't a war in Iraq or, potentially, Iran?

I think I missed this excellent article the first time around.

If they got rid of the federal, state, and local taxes on gasoline, the price per gallon would be much less expensive.

Of course, government revenues would decline. But they could be made up in other ways, or maybe spending could be cut...

Or we could raise the hell out of gas taxes and thereby make alternative fuel vehicles competitive in the marketplace and maybe cut taxes in some other areas.

Dave

Better yet, we could just import the technology from Brazil & start making alternative fuel cars & the cooking oil/grass fuels that feed them. Won't happen, of course: too many of the Ruling Class in this administration & their corporate buddies are too heavily invested in Big Oil, so Americans will be made to continue to subsidize the oil industry even as Fearless Leader prates about being addicted to oil. I mean, get real: Brazil has the means to produce alternative fuel & cars to use it, but WE don't?! Crap.

And thanx, Bird: I don't trust figures issued by either the industry or government, so it's nice to hear the basics from someone I consider as having no axe to grind. Yeah, Hawaii is a definite trip as far as prices of anything goes, even Kona coffee! I almost had hysterics the first time I had to go buy a gallon of milk. It tempted me to buy me a goat or something. What island are you on?

Good stuff. But if fuel tax was lowered or eliminated, the price would not be affected proportionatly. The demand would increace at the lower price and the oil companies would enjoy higher profits.

No one has mentioned drilling more of our own oil, and building more refineries to, oh I don't know, increase supply. A little econ 101.

Feel free to correct me if I'm wrong, but oil is used for other items other than gas, no?

Such as....hmmm, well: PLASTICS!

From WiseGeek.com:

"Common monomers used in the production of plastics, such as vinyl acetate, styrene, butadiene and vinyl chloride, are extracted from crude oil or natural gas...."

Web link:

My experience with this IS NOT in chemistry: it's in customer service in party stores. See, when I started working at a party store/gas station back in 1992, plastic 20 ounce bottles in my neck of the woods was just replacing glass bottles for Coke and Pepsi. Bottle water really wasn't the rage yet.

Now fourteen long years later, just about every product's container is made out of plastic. I can go into the cooler at my work place and find that, no fooling, ninety-nine percent of the prodcuts in there are in plastic. Take that, multiple that by the demand of the public for things in plastic bottles like water, like Coke, like Mountain Dew, and no matter the bottle return law the need for platics to make more containers is high.

Ergo, the need for crude oil to make plastic containers is high.

One item that no one has mentioned yet is how much ExxonMobil is spending on drilling for new wells this year.

Those who are accountants will understand that "Net Profit" only equates to how much profit ExxonMobil made this year (actually it was around $38 Billion), the earlier number was only for one quarter.

Anyway, the point is that "Net Profit" does not take into account most of the current "Capital Spending". My guess is that ExxonMobil will use the majority of their "Net Profit" to drill and develope additional Oil Fields around the world.

Many of you may remember Bernie Ebbers of WorldComm fame - Mr. Ebbers was convicted of moving monthly spending items into their "Capital Spending" items accounts, so that WorldCom could report higher "Net Profits".

Looks like somedays you just can't win!!

Im confused. In order to calculate 'percentage of cost' we would have to know how much crude oil it takes to produce a gallon of gasoline. I have yet to hear this author or any other talking head discuss this 'most important' piece of information. Does a gallon of crude produce a gallon of gasoline or does it produce 100 gallons of gasoline. If it is the later, than the price of doesnt effect the price at the pumps that much. This entire conversation is meaningless unless we have this important piece of the puzzle.

Attention #14 closedspace
Maybe the following site will answer your question. At least it sounded reasonable to me.

One barrel of crude oil makes about 19½ gallons of gasoline, 9 gallons of fuel oil, 4 gallons of jet fuel, and 11 gallons of other products, including lubricants, kerosene, asphalt, and petrochemical feedstocks to make plastics

http://www.gravmag.com/oil.html

All the info on oil cost and prices you would want to know.

Nancy#9

I appreciate the thought of switching to alternative fuels. However, oil is basically the liquid form of millions of years of sunshine. Switching to cooking oil/grass fuels would take so much land and get much less raw energy per acre. Unfortunately, I've even heard some countries are cutting down rain forests to grow oils just to supply EU quotas for "alternative fuels"!

So it's a nice thought, but it's not quite that simple yet and it's not completely a "Ruling Class" conspiracy.

EXXON - 36 billion in profits in 2005...

CEO of EXXON - $400 million godlen parachute for retirement and a million dollar a year consulting gig to boot...that's why gas prices are so high.

When they're also busy gifting their top retiring executives with exorbitant, obscenely outrageous, over-the-top retirement & bonuses at the same time they're making obscenely outrageous, over-the-top profits (and no matter by what name, a profit is a profit), I don't buy any sort of double-talk 'explanation' excusing current prices. If they can afford those retirement packages, & are making those kinds of profits, they can jolly well cut consumers a break.

And I hate to tell you, but I live in Virginia Beach and gas is $2.78 here...so, a $0.09 difference ain't that much. I was in Hono in Feb and gas was way more than it was here. Now they seem to be catching up. Did they lower the transportation costs of gas for you or raise them for us?

Americans use hundreds of millions of gallons of gas per day. So if they didn't give this guy a bonus, that would what drop gas prices for a day or two at the most? You can question the number but not how it impacts gas prices.

Yeah, but it's not just this one guy; these execs are pigging out across the board, stiffing the public & the small stockholders while they slop at the trough. Current stock voting laws only allow the major stockholders (all or most of whom tend to be fellow hogs on The Board) to have any say in compensation decisions, etc. If these outsized retirement & bonus packages do anything, hopefully it will move congress - the biggest pack of sloppees on record - to amend the rules so the rank & file stockholders can have a voice in refusing to allow this travesty of mismanagement & misrule by execs.

I wish OPEC would go broke and all those Arabs would starve. Sell it cheaper a-holes!!!!

We could always drill for our own oil off our own coasts like Castro and Mexico are, but that would be to damaging to the enviroment. Everyone knows that socialist and communist nations don't damage the environment. It's only us filthy evil capitalists making 400 million that destroy the environment.

Price of gas sucks, but until the supply catches up with demand, expect the price to continue to suck. Alternative fuels are not an answer since it would require everyone to buy new cars. Trying to go lean on energy use sounds great until they start proposing we all cook our food over a burning pile of our own dung.

We need real answers to real problems.

So Exxon made millions/billions. Now if Exxon would use some of those 'Excess Profits' to drill and seek more oil.... Oops, they CAN'T! Thanks to al those 'extreme', 'radical' liberals and conservationists that will NOT ALLOW Exxon to find our own, independent supply. Mexico can drill in the Gulf, but not the USA! Cuba can drill just a few miles from our coast, but not the USA.
And how much oil could be released for fuel use if all those major cities would finally convert to a few pounds of uranium to heat all those buildings!
And don't tell me about the 'Danger of Nucs!' If the Navy (Carriers and Subs) has personel living within two football field lengths or less of the 'reactor,' under water, for up to six months or longer at a time, with no adverse effects, I am sure that this country could produce an as equally SAFE system to replace oil burners for winter heat. The days of TMI are long gone!
It's time for sane, rational people it this country to stand up again, allow the inventor to come up with alternate means of transportation, etc., and NOT the radical individual, through a minority persuasion, have the government FORCE an unwanted, unsafe, undesirable vehicle, to all but the radical, on the rest of us!

I would just be happy if Exxon & their fellow pirates would release the technology they've already got for non-fossil/alternative fuels & the vehicles that run off them. But they won't, because it's easier to squeeze profits out of what they already have - a captive audience for their products, demand for which can only go up, as will their prices, as will their profits. I think it's going to take the danger of an actual revolution to get those bastards to make any changes at all.

64 Dodger: You stated that "One barrel of crude oil makes about 19½ gallons of gasoline". That is a cost of $3.59 per gallon of gasoline before refining, distribution taxes and markup. That doesnt make any sense.

I've reviewed several sources and found no reliable or consistant data on how much crude oil it takes to make a gallon of gasoline. (It seems like this is some secret that no one wants us to think about) Again, this article and conversation is nothing more than a meaningless utterance until this important fact is presented.

In looking around, it seems that the "normal" amount of gasoline from a barrel of crude is 30-40%. From there, it seems that the refinery has to work the oil (petroleum fractions) to get any additional percentages which will vary by the "mix" that is needed at the time. Therefore, there really is no set number of gallons of gasoline per barrel of crude. Personally, from the reading that I have done, I'd say they refine between 20-25 gallons on the average. I won't try to list all of the pages I've read. Sorry.

We need to focus more on the relative cost of gasoline. I have attached a link to an inflation adjusted cost of gasoline, I am sure there is another chart somewhere with the average miles per gallon of new cars.

Do I wish gas was cheaper? You bet!

Just think of a gallon of gas versus a gallon of milk.

To get Gas: Go to the ends of the earth, some of the toughest places and spend billions to extract crude, pump it into ships, pipelines etc to get to the refinery. Then refine into gasoline (a highly regulated process), put it into a delivery truck and deliver to your gas station, all along the way people need to be paid for their efforts and investments. It amazes me it still only $2.80 a gallon with all those taxes.

Compare this with a gallon of milk!!!

regardless of rise of cost of crude oil, the profit of oil comapnies should not increase percentage wise.

example:

if i sold rice for $1.10/lb and each lb costs me $1.00, i am making a 10 cent profit on each sale or %10. if my cost of rice rises to $2.00, i would (and most ethical businesses would too) charge $2.10 which lets me keep the same profit and not $2.20 to keep a %10 profit.

as you can see, my profit stays the same and has been proven to keep my business running, if i do it by percentage then i would just be gauging and taking advantage of inflation and in turn making inflation worse.

re: Fernando

Over the course of time, the profit that you "were" making on the rice isn't enough to run the business. Thus you have to raise you take to continue to cover what it costs to move/handle your product and cover the increased cost of living that has occured over time as well.

The oil companies are in the business of making money. We just don't think they need to be making/keeping quite as much.

A barrel of crude is 42 gallons. Currently the cost per barrel is about $71.00. That comes to $1.69 per gallon or crude. If the yield is (30-40%) ,as buckeynut claims, a gallon of gas would take $4.82 worth of crude oil to produce. This number is obviously inaccurate. You can not have this debate without having these correct numbers. An increase in the price of crude vs. the increase in cost of gasoline is not a linear equation. Percentages are meaningless unless we know the conversion factor. Doesnt anyone understand this?

I know this is somewhat off-topic, but here goes. If you are trying to figure out the rising costs of Healthcare, consider this. Let's say you have a car dealership that sells cars, there is a government program that ensures that everyone over 65 is assured a car. The dealership is required to sell cars to those over 65 and then they will be reimbursed 70% of what it cost them for the car. Each year more and more people turn 65. How does the dealership make up the difference to pay the rent and its employees?

What everyone seems to be missing here is that how much profit does these companies make per gallon of gas. The answer to that question is 10 cents for every dollar sold. Now you figure that as Americans, we use about 160 million gallons of gas per day, and it adds up fast. Also, something that has been failed to be mentioned here is that the price for crude oil is set in a FUTUREs market. Which means we are paying the cost to replace that oil 2 months in the future.

Now the question becomes ok, how do we lower the price of gas? One reccommendation was cut the CEO's retirement packages. Ok, but, it only solves the problem for oh 1 day, maybe 2 days. Well, what about alternative fuels? Well, until they become practical and not to mention cheaper to buy and maintain, won't see that happening any time soon, then there is the hybrids, good concept, problem, very few are buying them. As a matter of fact, Honda is getting out of the Hybrids because they are not making money on them. Then there is the novel idea that we go and find our own sources of oil and build more refineries. Oh wait, can't do that, that would upset every environmentalist we have.

The fact of the matter is, that our gas prices are tied to the world oil market. You have countries like China that are buying more of the oil supply in the world, so there is less supply, therefore, the price of oil goes higher. Simple supply and demand market forces at work here.

So Exxon/Mobil made a 38 Billion dollar profit last year, good for them, they take the risk, they should reap the benefits. That's capitalism.

can someone tell me why i still see people with hummer,escalades around all the time? Dont they realize they are just wasting more gas? why dont people swtich to crossover or wagons?(safer,more fun to drive,eats less gas)its not like most people really need that big of a car anyway

For #32 Fernando:

One of the things you are not taking into account with your "double-cost should not equal double-price" argument is that along with double cost, the rice vendor (or oil company) now has to spend twice as much to obtain the same amount of product. That means they need to have twice as much operating capital on hand to purchase their raw materials. How are you going to do that overnight if you don't also increase your profit a proportional percentage? And using your model, at what point does a company increase it's profits? Or are they forever locked in to that 10% or less? What you suggest simply isn't realistic, because it is far too simplistic.

Closed space ..If you go by energy yield ..there is a 20% penalty for gasoline. That is, for every 100 btu's of petro energy ..it takes 20 btu's to produce it. Since one btu looks like another

Anyone who thinks that all the vehicles in the US could run on current Brazilian technology is just misguided. Go to Brazil or talk to people from that socialist country and you'll find out that most people can't afford a car and those who can afford one only get tiny cars or mopeds. Then they take a substantial loss in mpg when they use alternative fuels. Study this a little before you begin to imagine the utopia of Brazilian fuel enginuity.

Answer for comment #37. Maybe it's because people can't just go out and buy a new vehicle? Maybe you're capable of paying for that new Prius, but the rest of us aren't in the financial situation to trade in a vehicle on a new one every time gas prices fluctuate.

To those saying the number of what is produced from a barrel of crude is inaccurate seem to think that you ONLY make gasoline from a barrel of crude.

All of those products come from a barrel of crude, not just the gasoline.

"One barrel of crude oil makes about 19½ gallons of gasoline, 9 gallons of fuel oil, 4 gallons of jet fuel, and 11 gallons of other products, including lubricants, kerosene, asphalt, and petrochemical feedstocks to make plastics"

So that is a total of 43½ gallons of products from 44 gallons of crude, not just the 19½ gallons of gasoline.

Refineries fraction crude oil, basically "boiling" out different items from a barrel of crude in a refinery stack, collecting different products at different levels in the stack where they condense.

Refineries produce many items, not just gasoline.

Sorry, I see it's 42 gallons of crude / barrel of oil. You get more due to other items added during the refining process.

To see more, look here:

If someone thinks that exxon can make a barrell of oil for $22 and they should sell that for $25, it will never reach them at the corner gas station.

Some middleman will snatch that barrell up and sell it at current spot pricing.

The best analogy I can think of is Red Sox tickets. You can't usually buy them at the box office. Season ticket holders get them and are analagous to fuel companies sitting on existing, producing well leases. They are apparantly allowed to "scalp" product at current market rates, despite getting their hands on that product at a lower fixed price.

People that wonder why more refineries aren't built shouldn't blame environmentalists. With the financial stakes plenty of 3rd world countries would allow foreign investement in a refinery with no annoying enviro laws in the way. Possibly a consistent return on investment hasn't yet been guaranteed?

Enviros pollute the economy

Why is it when the price of oil goes up the price of gasoline goes up at that minute almost,but when the price of oil comes down it is weeks before gasoline comes down?.
Why do they raise the price on the gasoline that is already in the tanks,but do not lower the prices until they have sold all they bought at the higher price?.

When I was younger I worke one hour for enough to buy ONE GALLON of gasoline. Now on Min, wage I can get almostTHREE GALLONS. Am I overpaid now, or is gasoline a real bargain ?

I have heard enough statements like "crazy liberals wont let us get to our own oil"

There are oil wells in Texas that have not been used for years because our greedy companies DONT WANT TO USE IT RIGHT NOW. They want only a minimal amount of domestic oil to be used while they drink up everyone else's first. Of course that means starting wars and taking over oil rich nations (only to of course screw them up and ruin their oil production for the forseable future, but that is another story). Also, most of Alaska's oil is sold to Asia.

Here's a thought:

Instead of applying elementary school mathematics to a macro-economical cost/profit model, howabout you spend a little more time researching the cost of production for gasoline. There is NOT a 1:1 correlation between the cost of gas as a function of the cost of crude oil.

TWO WORDS: margin cost

Look it up, understand it, then publish your ideas on the internet. Thank you.

November 27, 2006 · At about a dime a gallon, Venezuela has the world's cheapest gas. The low prices are the result of a big government subsidy. Motorists love it. They're buying cars at a record clip. Mediterranean living on the cheap gas for 60¢ a gallon Iraqi gasoline is the cheapest in the world at $.05 per gallon At three cents a litre, Venezuelans three cents a litre, a fraction of the 56 cents they would pay for a litre of bottled water or the 70 cents they would pay for a litre of milk so you tell what is fair price for gas