WHEN (not if) gas prices reach $4/gal for premium
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Burning Brakes
Join Date: Jan 2006
Location: Washington, DC
Age: 42
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Originally Posted by surferdude
With 8.7 billion dollar PROFIT from just one company (Exon) in the first 3 months of the year I'm not feeling sorry for the gas companies.
Originally Posted by Black_6spd
You take away profits and you end up with COGS (Cost of goods sold). The research, the cost of running the refineries, the salaries, etc are all factored into cost. On top of that, there is a HUGE profit simply because there is not competing resource today.
If you(-r government) take away an oil company's "profit" (accounting profit, NOT economic profit), they have no profit (i.e. earnings). The shareholders make no money. The business is no longer worth owning and they stop investing in it because they'd rather be in pharmaceuticals. Then you walk to work until the government nationalizes the oil industry. No thank you.
If any oil company COULD sell you gas for less than you get it today, they WOULD. Price fixing on this magnitude simply wouldn't work -- the incentive to cheat is too high. Moreover, it's pretty easy to tell it's not happening. Two years ago, the average price of gas was $1.88 per gallon and the price of oil was about $35 a barrel. Today the price of oil is close to $70 a barrel -- double 2004's price -- and gasoline is not yet up to $3 a gallon ($2.91 earlier this week -- that page also has a great diagram breaking down the various (accounting) costs associated with producing gasoline). Since oil is supplied by multiple sources that almost never cooperate with each other (the US and OPEC for example) we can assume that oil prices are competitive, and not very surprisingly the cost of gasoline appears to be about linear (actually somewhat sublinear) in the price of oil.
Bottom line: higher gasoline prices are caused by higher supply costs (thanks to, for instance, our president helpfully destabilizing the middle east while consuming gajillions of gallons of gas to do so), not giant conspiracies.
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