karl_lembke (karl_lembke) wrote,
karl_lembke
karl_lembke

Gas pains

A quick link to a post on where each dollar you pay at the pump goes.

Texas Rainmaker

In the chart given, 60¢ of each dollar at the pump pays for the crude oil used to make the gasoline. Some 20¢ goes to taxes. Twelve cents goes to pay for refining, and eight cents to distribution and marketing.

In an interview I heard the other day, an industry expert stated that the price of crude oil accounts for 55% of the price at the pump.

Elsewhere, a Cato Institute analyst stated that the price of crude is responsible for 85% of the total price – a lot of the other costs are affected by the price of energy as well, driving refined gasoline to the gas stations, for instance. Those trucks run on gasoline too.

In a conversation tonight, glittercat13 suggested that oil companies were hiding profits over and above the industry-wide 8% they were admitting to. The only problem with that is, where's the money coming from?

Let's stipulate that such "hidden profits" exist. One of the laws of economics is that income and expenses have to balance. (Call profit an expense, as profit represents money taken out of the business, too.) These "hidden profits" can't be coming from the cost of crude oil, 'cause that's a known expense. If oil companies were somehow paying $60 per barrel for $74/bbl oil, don't you think someone would spill the beans? Likewise, the cost of refining, 12% of the total, is the absolute maximum you could add to this "hidden profit", and we know refining has at least some nonzero cost.

Taxes? Maybe the oil companies are shorting the government on taxes. Yeah, right.

Distribution and advertising? Again, a maximum of 8% there, and we know both of those costs are nonzero.

The point is, while there can be some slop in the figures, perhaps enough to make a few people quite wealthy by the standards of an individual person, there's not enough slop to take the profit in the oil industry up to the levels of the banking industry (18%) or the pharmaceuticals/biotech industry (19%).
Tags: politics
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