High Gas Prices: Look No Further Than The Person In The Mirror

Everyday gas prices hit a new high record level. The folks people love to blame are the oil companies [Exxon (XOM) is the main whipping boy], the Iraq war, a Bush / Cheney conspiracy or the local gas station. As a matter of fact, they blame everyone except the real culprit, themselves.

Year to date gasoline demand is at a record 9.2 million barrels a day. Much had been said in the news about refinery outages and there have been a few but they have been able to keep up increasing production 3.1%, which is ahead of the 2% increased in demand. Note that it is ahead of the increase in demand, not usage. In fact, refiners have been able to meet 96% of our highest even demand. This compares to 93% of demand last year and is above the five-year average of 95%.

This means that despite you and I demanding more gasoline than ever, refiners are doing their part keeping up production. This demand and inventory depletion has lead to prices at the pump surging 43% this year past post Katrina levels to $3.13 a gallon nationally on Friday, and seem to be heading past the inflation adjusted all time high of $3.22 set in March of 1981. For me, I cannot get too worked up about gas when I pay $3.40 a gallon for milk, $7 a gallon for coffee at Dunkin Donuts, almost six times that at Starbucks (SBUX) and $6 a gallon for water at a ball game.

Savvy investor will be buying refiner stocks like Chevron (CVX), Exxon, BP (BP) and Valero (VLO) as prices and demand will not slow for at least the next four months, leading to plenty of profits.

So if refiners are doing their part, why have gasoline inventories dropped 15% between February and April to the lowest levels since 1956? The main culprit? A strike at a French port that has decreased gas exports to the US 9.6% or 109,000 barrels a day and is responsible for almost the entire shortfall.

This works out fine; it is much more fun to blame the French than ourselves anyway.

Comments

[info1:]

So True! the sad fact is the world is consuming over 30 billion barrels of crude per year and we're coming nowhere near replacing it, and of course the U.S. is the largest consumer by far, as china and india continue to grow explosively the alternatives are going to become more and more critical, unfortunately its going to be a long time for any of the alternatives to make a large enough impact to really affect the overall picture, but its full speed ahead---with or without the french!

2007 May 21 10:13 AM

[gorml94:]

We shouls all STOP FILLING OUR TANKS ALL THE TIME.tHAT HABIT TAKES GAS AND STORES IT IN OUR TANKS AS REFINER INVENTORY,
When you are 1/8th full, just fill to half full.
Lugging a full tank around hurts you mileage as much as having a passenger all the time.

2007 May 21 03:15 PM

[sikarskie:]

Partly true ..But Since the oil companies were allowed to merge together. Refining capacity has been manipulated and news releases have occurred to manipulate price.....so the result is a combination of issues..to say the user is totally to blame is a thought the oil giants want you to believe...Ignorance is bliss....follow the monies...since the mergers we only have a few trails to follow.....Solution= break up the oil companies to where they were 8 years ago...STILL the largest giants on the planet mind you.. and then we need to reduce consumption and build more refining capacity
Lawrence Siakrskie

2007 May 22 10:48 AM

[Mmarrkk:]

So, the evil oil companies have merged and are manipulating refining capacity? great one. watch out for the little black helicopters my man! Tell me how having fewer companies have done anything to capacity?

and when you say "...and then we need to reduce consumption and build more refining capacity", who are you speaking of? Is that "WE" include YOU? Or do you think it would be a good idea if "WE" tried to force companies to build refineries? The economics of building new refineries after adjusting for price swings and risks is just not there. So, why don't some of those benevolent money folks like Bill Gates or someone take their billions and build a refinery? You know why? its a money loser, that's why. Branson of Virgin Air has talked about it but talk is cheap.

And since we already have a bunch of refineries here on the Gulf Coast and you guys don't like the hurricane excuse, why don't we build on on the coast of SoCal or Florida?

2007 May 23 09:47 AM

[sikarskie:]

It is just common business...The fewer companies you have suppling your products...the more control you have in implementing cost of goods....They broke these companies up 50 years ago due to the fact of little competition and price fixing...just follow the monies and use common business sense..ask yourself would I like to have 10 competitors or 100??Lawrence
WHY would the refineries want to add more capacity when that stabilizes supply and demand ..eliminating one of the means to create price structure???Just think logicallly!!!

2007 May 23 11:26 AM

[Mmarrkk:]

I still ask: if building refineries is such a great business, why aren't these mega millionaires like George Soros, Bill Gates, Mrs. John Kerry, etc. out putting their money into building one? Because there is no business case to support it. The government is subsidizing alternatives, driving fuel efficiency, etc. So, once you get a new refinery permitted (good luck!) and then built, 5 years from now, you find the margin for your product has dried up! Hmmm, great business case! The fact that the oil cos' have merged have each be more efficient and given them better investments. No study done by the free market or government has shown price manipulation. All we hear are blow bags like Pelosi, Schumer, ad nausea (sic) talking. Well, talk is cheap. How about passing a bill if you think you have the answer?

Also, talk about breaking up these Big Oil Co's is interesting, considering two of the biggies aren't even US companies!!! Exactly how do you do that? BP and Shell are British and British/Dutch companies. And finally, did you know that all of the big oil companies make very small percentages of their profit here in the US. Do you really want to drive them out of here??

2007 May 23 06:03 PM

[sikarskie:]

They do not need to break them up....referring to the mergers that are still revokable..They just need to resend the mergers designed over 6 years ago..If you review these ..their was no legal review on these. ...As for profitability issue. Their is higer GP in this areathen many other industries. But this is a necessary utility. It could, and probably should be a utility type management.
Lawrencce

2007 May 23 07:55 PM

[Mmarrkk:]

No legal review????? Are you out of your mind? Having worked in one of the major ones, I know for a fact that there was a lot of legal review. Months and months and mountains of filings and paper. There was review by so many different departments that it wasn't funny.

Return on refining is not a very large number. It is more like a utility already. But tell you what, if you want to guarantee a FLOOR on the return on investment, I'm sure most CEO's would allow you to put a CAP on return as wells. Tell you what, you guarantee me that I'll return 6%, I'll let you cap my return at 8%. No problemo!!

Little did I know that the political risk of doing business in the good Ol USA would be higher than doing business in Russia. At least whacko Chavez is honest and says what he's going to do and why (steal your investment). The whacko's in Washington lie and come up with other reasons to do the same.

2007 May 24 11:21 AM

[sikarskie:]

ok..if it were 8% then that would be like the utilities...and should be run by municipals...not corporations who explore ship and refine...That would eliminate the chance of the refieries manipulating the supply and demand...They have no reason to meet supply when the market does not get met the parent company profits..and also they make the long and short of the product Do you understand going long and short refining at 55 a barrell and selling into a 62 barrell market..
Legal review here was very minimal campared to other litigitagion...There is no way on God's green earth that this would ever have been passed 8 years ago..and you don't feel that these pooor companies need to be the super giants they are now do you???

2007 May 24 07:04 PM

[Mmarrkk:]

Please show PROOF that companies are manipulating the supply of gasoline. And rising prices are not PROOF. Refineries run at high pressures, in corrosive enviornments and require maintenance. When they are run at 90-95% of capacity, they will break occassionally. And yes, they must go down in between seasons to get ready to make the next season's product. Many times the refineries are down due to occurrences beyond anyone's control. The Louisiana refinery that went down two days ago due to lightening. Guess the evil oil co's created that lightening too?

One thing I agree with you on: as a shareholder of several oil co's, I would prefer to be out of the refining and marketing side of the biz. Unknown to many of you, the profit margin is very poor on a multi year basis and is very volatile. Plus I'm really just tired of hearing all of your whining. I'd rather stick to finding and producing oil and natural gas. That's wehre the big money is made anyway. But I don't think municipals ought to run the refineries, although it would be comical to watch. And when gas prices rise to $5, who would you blame?

Still, no answer to a basic question: if there is so darn much money being made in refineries, why haven't any of the smart big money people put their money on the line and built a new refinery? Gosh, seems like there'd be a line of folks forming to do that. You've safely evaded that question several times so I don't expect an answer.

2007 May 25 08:38 AM

[sikarskie:]

MMMMMaaaarrrkk
PLEASE FOLLOW THE MONIES AND TELL ME THEY ARE HONEST AND NOT MANIPULATING THE SUPPLY CHAIN...LOOK AT THE REFINERY %'S BUT don't be naive..The money trail NEVER lies!!!!!!!Then tell why these poor little companies neede to be super giants:-) Lawrence

2007 Jun 02 11:26 AM

[Mmarrkk:]

SIK my buddy: I asked you to show PROOF. The fact that oil companies are making a lot of money is not proof. It is an outcome. And I have looked at the refinery %'s. For every percent down time, you can look at a REAL and plausible reason for the reinery to be down. Or, are you telling me that COP can control lightning strikes at their refineries? Or these fires that cause a lot of damage are set on purpose? Are you nuts?

We are currently in a time of the year when refineries are taken down for maintenance. This is the only time it can be done. If done in the winter, the price of heating oil would soar. If done later in the summer, gasoline would really go up. The months of April and May are when maintenance and turnarounds are needed. If these aren't done, you'll see some catastrophic events that will increase that downtime percentage to a really big number and hello $4 gasoline or higher!

You guys with your manipulation and conspiracy theories crack me up. Again, show PROOF. not allegations and not "high profit must equal illegal activity". Look at the percent of profit on total cost? Oil companies generate a relatively low return on capital, less than many industries. But I'm sure that doesn't matter to you. Well guess what? with all of the crap being spewed by you and others and our great congressmen, oil companies have even less incentive to build new refineries. So, again, why don't you and some of your buddies build a refinery?

2007 Jun 04 10:54 AM

[svkoho:]

Guys, look at the big picture:World oil consumption is increasing and reserves aren't. Refineries are expensive,have a long time horizon, liability risk etc and require OIL! If you have less oil at ever higher cost which eventually will curtail demand, you don't need more refineries. The majors can afford refineries, but they're not stupid. Oil as an energy source is on the way out and at some point will be too valuable to waste as a refinery input product anyway. What we need is ENERGY. It is time to turn the discussion to how and where we will get our energy and how best to use it. Oil will be p[art of the mix for the next 100+ years but it's time to move the discussion forward to obtaining and managing our energy needs. I'm just back from Italy with $7.50 gas. People drive smaller cars, bikes and mopeds and WALK! Almost no obesity. The trains are cheap,comfortable and fast. The only way to get more cheap oil is to steal it, but that isn't working out so well for cheneybush and it's a doomed option.

2007 Jun 01 07:11 PM

[sikarskie:]

To say it is all our fault is not a real thought out answer. Gas in Italy vs. Saudi has nothing to do the the reality of cost. EU has it funding tax structure. Hear the profit picture is to the oil giants not infrastructure. Oil refineries cost little to nothing here since the tax breaks in force offset the profit structure of the companies BP, Shell . they are owned internally and due to the total controll of the oil picture the reinery is the key to manipulating the supply and price structure...they are a key in why utilities are guided by municipal approval. The geology cost is 7-15 Bbl and you add in the tax breaks price manipulation even less...It makes sense when you look at the profits.....FOLLOW THE MONIES. The oil sands in Canada are at the high end of oil cost and they are estimated at 15.00 Bbl extraction cost.

2007 Jun 02 10:04 AM