Senate Questions Oil Execs

[Conan71]

I call bull**** on refiners not making money on gasoline.  It's the same story retailers and wholesalers are saying.  Or that margins are so low, it's really a loss-leader to get people into a convenience store to buy a sandwich and high-profit fountain drink or coffee.  

If no one makes money on gasoline, then why make it and sell it in the first place?

[OUGrad05]

quote:Originally posted by waterboy

Re-reading your posts confirms that. At least the parts that weren't political in nature[]. Everyone would be wailing had there been no questions asked at all even if most of them were inane. And I agree that windfall profits is a waste of time and only satisfies the public's anger at something they don't understand and take for granted.

But I don't understand your saying that gasl. prices are not rising. Do you mean in proportion to oil prices? That's certainly true but they are rising. Nearly twice the price of a year ago. Some of the older refineries are not capable of running at 95% for very long. The one I worked at was comfortable with 86%.

As you noted, supply is not the problem, though it may be in the future. Ineficient combustion engines and our thirst for them is the problem. What I believe is being overlooked is the dividend to be reaped from these fast rising prices, which among other things is exploring other sources of energy and more effort to conserve what we have.

Yea, gas prices are not rising in proportion to oil.  They're dropping in proportion ot the price of oil.  Sorry if I didn't make that clear.  Sometimes at work I get in a hurry to finish a thought before I get interrupted.

[OUGrad05]

quote:Originally posted by Conan71

I call bull**** on refiners not making money on gasoline.  It's the same story retailers and wholesalers are saying.  Or that margins are so low, it's really a loss-leader to get people into a convenience store to buy a sandwich and high-profit fountain drink or coffee.  

If no one makes money on gasoline, then why make it and sell it in the first place?

No one can force you to believe anything you dont want to.  The fact is COP and CVX are both struggling to make profits in their refining sectors.  For april both broke even...if prices continue to climb and gasoline inventories continue to climb both companies said they could post refining losses for the 2nd and 3rd and maybe even 4th quarters.  The capital structure of most of these companies just isn't very effective with prices beyond 100 dollars a barrel.  Their capital deployment and ROE/ROC/ROA begin to drop as prices rise...this is especially true of the big refiners like COP and CVX.  

For example, ConocoPhillips refines more oil than it produces.  Which means it pays very close to market prices (typically a 5 to 10% discount) for oil from Exxon, BP, Shell etc...they run that oil through their refineries and produce gasoline which historically has had higher margins than oil production itself.  Mulva made some major plays to make COP a heavy hitter in the refining section of the industry in part because of COP's inability to consistently replace reserves.  This seemed fairly smart to many at the time but now that prices are high and we're actually seeing that affect demand for fuel their margins are being hit.

[waterboy]

Are you related to Shadows?[] I think what you're saying is that in order to keep refineries operating at a comfortable level,95%, some refiners are having to buy increasing amounts of oil at market prices which means they make even less per barrel of refined oil than if they had invested the same money to simply buy oil and sell it to other refiners. Higher volume of refined product but smaller margins as volume rises. So the refiner is not the culprit but speculators that are buying in anticipation of rising crude costs and maybe even artificially forcing them to rise. Like daisy chaining.

Just like in previous oil crises', whoever owns "old" oil, that oil that whose costs of discovery have already been long paid for, makes the most money. Having to drill at current prices costs more and is being passed on. Hiding your old oil or disguising it as "new" oil could certainly show up on the books as a small margin when in reality you're cleaning up.

[sauerkraut]

quote:Originally posted by cannon_fodder

But I can't drive...

OK, then Can ya pay a $300.00 fine if you can't drive 55? ~This group is pushing hard to bring back 55 mph with heavy fines. Funny how little groups in the USA can make the laws for everyone else. The enviromental groups are keeping much domestic oil drilling off limits hurting everyone else. This 55 mph group has a web site too. The democrats in Congress seem intrested in this. Contact your congressman and tell them "No to 55"[xx(]

[CoffeeBean]

Gas prices by county:

[TUalum0982]

quote:Originally posted by OUGrad05

quote:Originally posted by Conan71

I call bull**** on refiners not making money on gasoline.  It's the same story retailers and wholesalers are saying.  Or that margins are so low, it's really a loss-leader to get people into a convenience store to buy a sandwich and high-profit fountain drink or coffee.  

If no one makes money on gasoline, then why make it and sell it in the first place?

No one can force you to believe anything you dont want to.  The fact is COP and CVX are both struggling to make profits in their refining sectors.  For april both broke even...if prices continue to climb and gasoline inventories continue to climb both companies said they could post refining losses for the 2nd and 3rd and maybe even 4th quarters.  The capital structure of most of these companies just isn't very effective with prices beyond 100 dollars a barrel.  Their capital deployment and ROE/ROC/ROA begin to drop as prices rise...this is especially true of the big refiners like COP and CVX.  

For example, ConocoPhillips refines more oil than it produces.  Which means it pays very close to market prices (typically a 5 to 10% discount) for oil from Exxon, BP, Shell etc...they run that oil through their refineries and produce gasoline which historically has had higher margins than oil production itself.  Mulva made some major plays to make COP a heavy hitter in the refining section of the industry in part because of COP's inability to consistently replace reserves.  This seemed fairly smart to many at the time but now that prices are high and we're actually seeing that affect demand for fuel their margins are being hit.

they may have lost money in the refining sector but still managed a meager 18.4 billion in 2007.  Who cares if one part of the company is losing money when the other parts are bringing in 18 BILLION DOLLAR PROFIT! Those poor oil companies!

[mrhaskellok]

And the answer was right under our nose all along!  

http://www.sciencedaily.com/releases/2006/10/061025183256.htm

Weight Gain Of U.S. Drivers Has Increased Nation's Fuel Consumption
ScienceDaily (Oct. 27, 2006) — As American waistlines have expanded since 1960, so has their consumption of gasoline, researchers at the University of Illinois at Urbana-Champaign and Virginia Commonwealth University say.


Americans are now pumping 938 million gallons of fuel more annually than they were in 1960 as a result of extra weight in vehicles. And when gas prices average $3 a gallon, the tab for overweight people in a vehicle amounts to $7.7 million a day, or $2.8 billion a year.

The numbers are added costs linked directly to the extra drain of body weight on fuel economy. In a paper to appear in the October-December issue of the journal The Engineering Economist, the scientists conclude that each extra pound of body weight in all of today's vehicles results in the need for more than 39 million gallons of extra gasoline usage each year.

"The reason we looked at this issue was that gas prices hit an average exceeding $3 per gallon in September 2005," said Sheldon H. Jacobson, a professor of computer science and director of the simulation and optimization laboratory at Illinois.

"This was the highest recorded level in the United States. We thought there must be some way that we could determine how to quantify the effect of being overweight on fuel consumption. We felt that beyond public health, being overweight has many other socio-economic implications."

Jacobson presented the challenge to Laura A. McLay, who was a doctoral student in his laboratory at that time and is now on the faculty at Virginia Commonwealth University, and they pursued the issue through his funding with the National Science Foundation.

Their conclusions are based on mathematical computations drawn from publicly available data on U.S. weight gain from 1960 to 2002, a period in which the weight of the average American has increased by more than 24 pounds, according to data from the U.S. Department of Health and Human Services.

By 2002, 62 percent of adults were overweight with a body mass index of between 25 and 30; more than 30 percent were considered obese with a BMI exceeding 30.

The fuel-consumption calculations apply only to passenger vehicles, including cars and light trucks driven for non-commercial reasons. Ruled out were other factors such as increasing the weight of cargo or decreasing fuel efficiency through poor maintenance. Driving data collected in 2003 were used to gauge fuel consumption based on weight gains during the last four decades.

The researchers used three different scenarios that considered not only beefier drivers behind the wheel but also their passengers, accounting for individual characteristics such as ages, numbers of people in the vehicle, and expected weights.

Since 1960, McLay and Jacobson said, the consumption of no less than 938 million gallons of gasoline annually can be attributed to weight gains of drivers and passengers. Of that total no less than 272 million gallons are consumed annually as a result of weight gains since 1988.

"The key finding is that nearly 1 billion gallons of fuel are consumed each year because of the average weight gain of people living in the United States since 1960 -- nearly three times the total amount of fuel consumed by all passenger vehicles each day based on current driving habits," McLay and Jacobson wrote.

"Although the amount of fuel consumed as a result of the rising prevalence of obesity is small compared to the increase in the amount of fuel consumed stemming from other factors such as increased car reliance and an increase in the number of drivers, ... it still represents a large amount of fuel, and will become even more significant as the rate of obesity increases.

The conclusions, Jacobson said, should be considered conservative because they do not consider many indirect consequences of obesity nor the increase in the number of vehicle miles linked to more people living in the United States and owning cars.


--------------------------------------------------------------------------------

Adapted from materials provided by University Of Illinois At Urbana-Champaign.

[mrhaskellok]

Drive 55 AND get on a national diet!  [][][]

[mrhaskellok]

Some more interesting information.

http://www.infoplease.com/ipa/A0004727.html

[sauerkraut]

quote:Originally posted by mrhaskellok

Drive 55 AND get on a national diet!  [][][]

Done that already and it was a failure. The federal gov't does not really have that power, It's against the 10th amendment. No where in the constitution does it say anything about letting the federal gov't control state speed limits. The 10th amendment is darn clear on that. Speed limits are a state issue. 55 is way to slow anyhoo.

[mrhaskellok]

quote:Originally posted by sauerkraut

quote:Originally posted by mrhaskellok

Drive 55 AND get on a national diet!  [][][]

Done that already and it was a failure. The federal gov't does not really have that power, It's against the 10th amendment. No where in the constitution does it say anything about letting the federal gov't control state speed limits. The 10th amendment is darn clear on that. Speed limits are a state issue. 55 is way to slow anyhoo.

I agree, but we lost that "right" by allowing the fed to pay for our roads...you would have a righteous argument if our states gave the fed the finger every time the offerd funding, problem is they didn't.  They sorta bought and paid for our roads, hence they are going to say what you can and can't do on them.

I agree though, shouldn't be a federal issue, I prefer it to even be more local than state level.  In some areas of the state, 75 makes sense, in others it doesn't.  Problem with this is people don't participate on the local level needed to make these changes occur.

55 is not too slow, been driving it for some time now...went from 21mgp to 28mpg.

[we vs us]

quote:Originally posted by we vs us

. . . .3) the fact that the richest oil nations are NOT investing in infrastructure and prospecting to keep up with demand seems to point not to a lack of capital to build it but to lack of available resources . . .

I've been thinking all weekend about this, and there's another reason why major oil nations might not be investing in infrastructure:  they think they've got enough capacity as it is.  

While whether or not we're at Peak Oil is a question that seems to obsess the blogosphere, there's another supposition gaining ground, and that's that high oil prices are indication of another speculative bubble. Peak Oil assumes a declining supply and pricing based on increasing scarcity, whereas if we're in a bubble, it's all about investors driving the prices up artificially.

One of the things I found most compelling came from a "This American Life" podcast, of all places.  Titled "The Giant Pool of Money," it's meant as a primer on the housing crisis -- at which it's fantastic -- but at the same time focuses on this giant pool of money, which, according to the podcast is the sum total of international money available for investment.  This is a pool that has grown exponentially in the last several years, and yet has fewer places to earn satisfactory yields, since Greenspan kept the US interest rates so low.  

In the podcast, the giant pool of money, in looking for a good rate of return, began looking at mortgage and real estate products in the US and Europe, many of which were risky (based on subprime buyers) but offered higher returns. So, the thesis here is that investment money generates its own sort of demand -- demand for a good return -- and it will find that return one way or another, even if the commodity itself is risky and even if the vehicles through which the commodity can be invested in are risky.

Its possible, then, that the giant pool of money has also found the oil markets to be a place for  good rate of return.  At one of my favorite econo-blogs, Naked Capitalism (NOT written by a free-market hating commie, thank you very much), the author put together an  excellent post about oil speculation.  He riffs off of a recent interview with George Soros (who also believes, incidentally, that we're in an oil bubble), and brings in several sources -- including the US goverment -- to support his theory.  

My take away is this:  oil futures -- much like many of the new mortgage securities -- have been pushed off of the regulated markets by our giant pool of money's need for return, and into unregulated and unmonitored exchanges.  The unregulated exchanges can bid up the price in order to generate a satisfactory return on the investment capital, but at some point the bubble has to pop, as prices stray too far from reality.  

Anyhow, this is a ton of wonkishness, and I may  have just enough info to make me dangerous (rather than knowledgable), but it does strike me that there's a loooot of international investment capital looking for a home, especially now that the credit markets have seized up, and commodities (oil, but also grain and corn and beef, etc -- ) are all almost doubling in price . . .

[waterboy]

heh, Pyramid schemes at global levels. I could see that. Especially if you look at how local capacity and storage on the West side expanded during the last two years. Its like they knew something.... Now if we could figure out when the bubble is likely to burst.

[dggriffi]

Its clear that the oil companies are price fixing which is the real problem.   Since there are really only three,  it makes it easy for them to price signal.   This should be clear from the massive profit increases they have seen.  An increase in oil price does NOT result in an increase in profits unless they raise their margins.


Free market is the greatest thing in the world but it breaks down when monopolization begins.