Posted By Pete Chimney on 02/11/2009 11:20 AM
I would like to make a few comments to your recent post.
Currently oil is selling for around $40/barrel (although there are many different grades of crude oil, some higher priced than others) or approximately 95 cents per gallon. But this is a sale price at the wellhead. Once a barrel of oil is produced is must be transported to a refinery, refined into products, shipped to distribution terminals, and sent to a filling station. All of these steps add to the cost of the fuel and eat into your hypothetical profits of 50 cents per gallon. The usual profit margin for oil companies is approximately 8%, that is for each $1 in sales they benefit with 8 cents profit. Companies such as Microsoft and many pharmaceuticals have profit margins in the 20-30% range.
There has been much said in the press and TV media about large oil company profits. While the dollar amount of profits are larger so are the total dollar amounts of sales. In other words the oil costs more to purchase and the prices charged are higher and so are the profits but the profit margin is still the same 8%. This year the dollar amounts of profits for large oil companies will be less, princiaply due to the price of oil being much lower and the prices of producs also being down. But the profit margin will still be around 8%.
Wow, someone else that paid attention in a college level petrochemicals history class. Mine was many years ago, but the same held true for the little to big boys back in the early days. Much of this was shown in the movie "There will be blood" when Plainview started his pipeline to increase his margin and get away from the tank car monopoly.
Also remember the Saudi's claim that their "break even" price on a barrel of oil production is $55 or so, so the OPEC cuts are going to be part of it.
Still, the US has some of the cheapest gas. Friends in Holland are paying more than $10 a gallon, but then, the Netherlands are the home of Shell.......but they have a much higher tax level.
