Just a simple question..or two., page 1

Well, I'm not rich (compared to most), and I'm not exactly an oil baron, but I have the answers to your questions anyway. They're really easy to see if you watch and listen objectively to what's going on.

The price of fuel is based on two things: the price of the raw materials (oil), and the price of overhead (taxes, buildings, exploration, etc.). This is true of any business, whether it's the corner grocery store, WalMart, or BP. What's also true is that Big Oil exists to make money. Somewhere, sometime, someone spent a lot of their hard-earned money to set up a refinery and hire people to run it, then more money to buy oil to make into gasoline. They did that so they could make a return on their investment. They did not do that because they wanted to help out AGENT_T (or TheRedneck, for that matter).

The price of oil, in turn, relies on several factors, each one a different company also interested in that time-honored evil venture of making money. Someone pumps the oil out of the ground, meaning they must pay for the mineral rights on the land, the cost of drilling the well, the cost of installing a pump, and the energy required to run that pump. Then someone has to deliver that oil to a refinery, paying for a tanker to move it in, and the fuel to power that tanker.

But before this ever happens, there's someone else with their hands in the cookie jar: speculators. Oil is a commodity. Anyone can buy it. If you have $128 laying around (and know a broker that deals in small quantities

), you can become the proud owner of a barrel of light sweet crude oil. As owner of that crude oil, if someone offers you $150 for it, you have the right to sell it and make $22 for your trouble. That's what speculators do, in larger quantities of course, but they do it through the use of futures.

Let's say that you have a gut instinct that oil will be $150.00 a barrel in two months. You can go to the oil well owner and say "Hey! I'd like to buy some oil from you, in two months. Here's my $128 per barrel and I'll be back in two months to get my oil." The well owner agrees, and you sign a contract. That contract is called a 'future' because it is based on what the future holds. If, in two months, oil is going for $150 per barrel, you just made $22 a barrel on whatever you purchased, and you don't even have to do anything! You just call up the refinery (Big Oil) and say "Hey, I want to sell some oil at the going rate. You interested?" Of course they are; the refinery doesn't do much without oil. They'll even send a tanker they know to pick it up from the well.

Now the more speculators think the price is going up, the more they offer for oil, which makes more speculators get interested, which takes the price up another notch, which... you get the idea. Everything runs this way until the speculators get scared and stop buying futures.

Now the gasoline is shipped (again, by truck, another cost) to the gas station. They sell it to you. The gas station was started much like the oil company, in order to make money. So they sell it to you for the same price as the other stations around. Why? Simple: if they price it lower, they are giving away profit they could have made, and if they sell it too high, everyone will go somewhere else. That's why prices seem to go up and down together.

Big Oil reports a profit of about 8% on their operation. That is extremely low. Retailers commonly make between 50% and 300% markup on the products they sell (of course, they pay overhead out of that, so the actual figure is a little lower). The number is so high (in billions and billions, to quote Carl Sagan) because they sell billions and billions of gallons of fuel! The gas station is barely making anything usually on the gas; they stay in business because you just paid $1.29 for a bottle of water while you were getting gas. The oil producers do make some good cash, and that's the other big problem.

The US dollar is dropping in value. That means that something in Europe costs more dollars than it did before, and something in America costs less Euros than it did. Since the USA doesn't allow drilling for oil here, we have to buy it from somewhere else. When we do that with a falling dollar, it costs more in dollars to get the same barrel of oil. The wells don't really make any more in real income, just in more pieces of paper called dollars.

We also have no new refineries, so a lot of our fuel has to be produced overseas. That's more services we pay for with a falling dollar. Then, since fuel standards are so high here, the ooil companies have to ship a lot of the fuel back overseas to sell it, because they simply can't sell it here for enough to pay for the expensive reprocessing. That's less fuel for us, more for everyone else. And just to help things out, if they ship ethanol back overseas after refining it here, our government gives the oil companies a nice big tax credit for helping to save the planet (and delete our food supply).

I'm upset over the prices too; A fill-up on my truck costs about $600-$700 (thankfully on a company card)! But you just don't kill many ducks by shooting the decoys. The speculators and the government (not via direct fuel taxes, but hidden tax incentives) are the ones to blame.

And as to how much is enough? At what point will you say to your boss "Thanks for the offer, but I don't want a raise. I make too much money already"?

TheRedneck