Dropping gas prices

[rms427]

Most of the profits for major oil companies comes from producing oil not refining and marketing products. Historically, refining and marketing has been a poor investment. The company I retired from (Chevron) actually lost money making and selling products in the US the last two quarters of 2007 because the price of oil has gone up faster than the price of gasoline. The yearly profit for Chevron for Refining and Marketing products was just under $4 billion for 2006. This was by far the best ever for downstream (marketing and refining).They sold 55.5 billion gallons of product that year so the profit for marketing and refining was around 7 cents per gallon of products sold. Overall profit including upstream (producing oil) and the chemical business was $17.138 billion or about 30 cents per gallon. Refining and marketing profits for 2005 was about $2.75 billion, 2004 was about $3.25 billion, 2003 was about $1.2 billion and 2002 was a loss of about $.4 billion.

Income taxes paid in 2006 were $14.8 billion. Taxes other than income taxes were $20.9 billion or a total of $35.7 billion in taxes. Capital and exploratory expenses $16.6 billion.

So the oil companies are currently making a lot of money but they sell a lot of product. Chevron's rate of return on capital employed for 2006 was 22.6%. I believe this is the best ever. Average for the years I worked for the company was about 10%. Just check the rate of return for some other industries.

The major oil companies control less than 5% of the total worldwide reserves of oil and gas. Most of the oil is controlled by countries that don't like us. We should have been developing alternate energy sources all along but oil has been and still is too cheap. We should have much higher taxes on petroleum products like most developed countries so that we conserve more and alternate energy sources become economic. Even at these prices we are still using more oil now than last year. Ok, enough is enough, I'll get off my soap box.

[bdeutsch]

First, let me state that I am a car guy and love the sound of a V8, V10, or V12 at full throttle.

Having said that though, current realities reflect nothing more, nothing less than a supply-demand curve. Price of crude today hit $111USD/barrel. About one-year ago or so, it was down around $60USD/barrel. Math seems pretty straight foreward to me on this.

Was in Europe last week (France and Ireland). Based on some very rough calculations, they are paying between $11.00 to $12.85 per gallon for their gas. You do not see many cars with V8s...

Net-Net of where I am going with this. We are all entitled to have whatever toys we want, that is one of the great things about this country. Unfortunately, these toys in particular, generally consume large quantities of what is getting to be a very expensive (by our standards, not the worlds) consumable. While I do not see crude staying at the $111USD/barrel level, I do not see it anytime soon going back much under $100; so we better get use to paying more.