Contour Enthusiasts Group Archives Forums General Common Interests Why the hike?

Originally posted by sigma:

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1> Crude Oil prices went up 5% last week. A 15-cent hike over a 2-week period is roughly the same ~5% increase. You can expect the price to go even higher as the week goes on.

2> Oil companies profits are high, their margins are not. There's a difference. Learn it.

3> The price gains over the past few months are actually more because of refiners wanting to get their piece of the pie than Big Oil. Most oil is refined not by Big Oil but by other companies like Valero. These companies are bumping up their margins to more appropriate levels.

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Originally posted by loggerbomb:

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you cant tell me making one billion dollars in one quarter and having small margins goes hand in hand.

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Originally posted by sigma:

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Originally posted by loggerbomb:

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you cant tell me making one billion dollars in one quarter and having small margins goes hand in hand.

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It doesn't take a genius in economics to figure it out.

When you make $500 Billion a year in revenues, even if your margin is just 1%, you made $5 Billion.

As the price of oil has gone up and the price of gas has gone up, the revenues from selling gas has gone up. When the price of what you're selling goes up by double, even if your profit margin stays exactly the same, your profits double. The margins of Big Oil aren't excessive at ~6-9% and are FAR lower than many other companies in a variety of industries and in-line with what the market considers an average, healthy company.

It isn't that complicated.

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Originally posted by RTStabler51:

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Originally posted by sigma:

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1> Crude Oil prices went up 5% last week. A 15-cent hike over a 2-week period is roughly the same ~5% increase. You can expect the price to go even higher as the week goes on.

2> Oil companies profits are high, their margins are not. There's a difference. Learn it.

3> The price gains over the past few months are actually more because of refiners wanting to get their piece of the pie than Big Oil. Most oil is refined not by Big Oil but by other companies like Valero. These companies are bumping up their margins to more appropriate levels.

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So, when the price per barrel dropped for a few weeks solid a month or so ago, why didn't gas prices drop accordingly?

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The price did/does fall. People are just much more sensitive to rising prices than falling ones. You didn't see any stories when the price of oil spiked but the price at the pump stayed the same, did you? Of course not, that's not the news people want to hear. They want to hear about how Big Oil is screwing them over. It gives them someone to blame for their woes.

Look at the 2nd chart below when you get down there and notice the 9-month period from the end of '99 to mid'00. The price of oil tripled. What happened to gas prices? They went up a whole 50%. Did anyone talk about how Big Oil was doing them a favor by not passing on every penny of that increase? No. Of course not. Investors were a little pissed though. Does more than 0.00000001% of the population even know that happened? No. It's not the kind of news people want to hear about. But when the price of crude goes up 10% and the price of gas goes up 15% and all of a sudden they're gouging the [censored] out of us.

The US DOE has records of oil and pump prices going back 10 years. You can pull these records and do your own analysis. I did this about 2 months ago out of curiousity.

Here's 2 of the charts:



This chart shows volatility. Percent gain in Crude/Pump price on a weekly basis for the past 10 years. Note how incredibly volatile the crude oil market is compared to the pump price. The vast chain between us and the oil smooths out this volatility.

In fact there's only 2 occurences in the past 10 years where the price at the pump rose was noticeably higher than the price of oil rising in the surrouding time -- August of 2001 and August of 2005.

Sure, there's some big drops one week at a time where I'm sure we'd all love to see the price at the pump fall the same. But you take the bad with the good. There are FAR more times when the price of crude oil rises faster than the price at the pump. In fact, in the last 10 years, the week-over-week price of pump gas went down 272 times and up only 219. The week-over-week price of crude oil went up 250 times and down on 202.

And what does all that lead to?

This:



This chart is scaled evenly. Notice that the price of crude oil is rising faster than the price of pump gas. Production efficiencies created largely by the merger of Big Oil has enabled them to absorb some of the rising costs of oil not the opposite of gouging people, which is what most people want to believe. Some of that difference is also the effect of taxes -- as the price rises the percentage of the price that is taxes decreases, narrowing the effective difference between the price of oil and the price of pump gas.

All in all, consider yourself lucky that Big Oil isn't passing on every single price difference in crude oil on to you on a daily basis and instead smooths the variation out over time. Not only would the price at the pump bounce around like a ping-pong ball, but you would be paying quite a bit more than you're paying now if they did.