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Old 10-19-2011, 10:42 AM  
TEX TEX is offline
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Gas Price Question?

I see that the price of oil went up a bit overnight and the price of gasoline immediately followed. Up a few cents from yesterday, which is up a few cents from the day before. And up about .10 cents since last week. I was wondering how come when the price of oil falls, it takes awhile for the price of gasoline to fall? A local TV station in Houston did a story on this and reported that the price of the gas at the station has already been paid for so when the price of oil falls, the savings at the pump is not reflected until the supply on hand is expired. Why isn't that the case in reverse?
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Old 10-19-2011, 02:23 PM   #46
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Originally Posted by banyon View Post
So, if I construct small Oil company XYZ, and let's say we have the following:

$5 million in revenue

$5 million in costs.

My salary as CEO is $1.5 million. Now, you tell me which line does this go on?

What's my profit margin? Is it worthwhile to keep doing business? (to me?)

This is just one example, of course. We can construct any number of scenarios with shell companies, offshoring of revenues and assets, option awards, etc.
It would come out of the net income figure.

If you think that a ~9% PM is excessive, that's fine. Or, if you think that "Big Oil" uses fraudulent accounting, perhaps you should alert someone. They are all public companies.
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Old 10-19-2011, 02:24 PM   #47
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Originally Posted by jspchief View Post
So the answer to the OP's question of why the gas prices don't fall at the same rate as they climb is simply "immediate increases are a vehicle for improved profits".

Once consumers started associating the price of a barrel of oil with the price of a gallon of gas, they also began to recognize how gas stations played the speculation to thier advantage.
Not really. When crude surged in 2008, what did you expect the retailers to do? Lose a tremendous amount, or try to make their pricing consistent with the rise on crude?

They were just following the price of crude. Now, you could certainly argue that speculation was a part of crude's rise in 2008.
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Old 10-19-2011, 02:30 PM   #48
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Quote:
Originally Posted by Donger View Post
Not really. When crude surged in 2008, what did you expect the retailers to do? Lose a tremendous amount, or try to make their pricing consistent with the rise on crude?

They were just following the price of crude. Now, you could certainly argue that speculation was a part of crude's rise in 2008.
I'm not sure I follow what you're asking.

Maybe my use of "speculation" was inaccurate. I only meant that people following crude price's relationship with gas prices are bound to recognize how gas stations profit from the speed of their reactions to crude prices.
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Old 10-19-2011, 02:32 PM   #49
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Quote:
Originally Posted by Donger View Post
It would come out of the net income figure.

If you think that a ~9% PM is excessive, that's fine. Or, if you think that "Big Oil" uses fraudulent accounting, perhaps you should alert someone. They are all public companies.

Are you disagreeing that Profit margin = Revenues-Total Costs / Revenues?

Or are you now agreeing with me that it is more complicated than that?

It is my position, that even though these are "public companies", they have become largely unresponsive and unaccountable to regular (non-institutional) shareholders.
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Old 10-19-2011, 02:32 PM   #50
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Quote:
Originally Posted by jspchief View Post
I'm not sure I follow what you're asking.

Maybe my use of "speculation" was inaccurate. I only meant that people following crude price's relationship with gas prices are bound to recognize how gas stations profit from the speed of their reactions to crude prices.
I guess so. I thought you were referring to the part that commodity speculators play/ed in the pricing of crude oil.
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Old 10-19-2011, 02:33 PM   #51
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Quote:
Originally Posted by jspchief View Post
So the answer to the OP's question of why the gas prices don't fall at the same rate as they climb is simply "immediate increases are a vehicle for improved profits".

Once consumers started associating the price of a barrel of oil with the price of a gallon of gas, they also began to recognize how gas stations played the speculation to thier advantage.
Exactly, you would think that these free market champions around here would applaud consumers becoming more aware of this phenomenon so we can achieve better price competition, instead of making excuses for the stations.
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Old 10-19-2011, 02:36 PM   #52
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Quote:
Originally Posted by banyon View Post
Are you disagreeing that Profit margin = Revenues-Total Costs / Revenues?
No, I'm not disagreeing. That's why I stated that the CEO's salary would be figured into the net income part.

Quote:
Originally Posted by banyon View Post
Or are you now agreeing with me that it is more complicated than that?

It is my position, that even though these are "public companies", they have become largely unresponsive and unaccountable to regular (non-institutional) shareholders.
No, I'm not agreeing with you that it's more complicated than that. In your scenario, the CEO is grossly overpaid (as it relates to revenue).
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Old 10-19-2011, 02:37 PM   #53
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Quote:
Originally Posted by banyon View Post
Are you disagreeing that Profit margin = Revenues-Total Costs / Revenues?

Or are you now agreeing with me that it is more complicated than that?

It is my position, that even though these are "public companies", they have become largely unresponsive and unaccountable to regular (non-institutional) shareholders.

This suggests that this is a change from what was previously the case. I would suggest that large public corporations have never been responsive or particularly accountable to non-institutional shareholders.
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Old 10-19-2011, 02:38 PM   #54
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Quote:
Originally Posted by banyon View Post
Exactly, you would think that these free market champions around here would applaud consumers becoming more aware of this phenomenon so we can achieve better price competition, instead of making excuses for the stations.
No one forces me to buy gasoline. No one forces you to buy gasoline.

If you have an issue with the low PM's the stores and "Big Oil" makes, stop buying their product.
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Old 10-19-2011, 02:39 PM   #55
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Old 10-19-2011, 02:44 PM   #56
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Quote:
Originally Posted by Donger View Post
It would come out of the net income figure.

If you think that a ~9% PM is excessive, that's fine. Or, if you think that "Big Oil" uses fraudulent accounting, perhaps you should alert someone. They are all public companies.
It's incredibly disingenuous and misleading to decry "low profit" margins on one hand, while simultaneously ignoring siphoning of profits for exorbitant salaries and benefits by claiming them as operating costs/expenses. Today, many corporate farmers and ethanol producers are great at doing this very same thing. They claim...."poor, poor, pitiful me!" on the one hand, while writing off "capital investments" and business "expenses" that provide them with a standard of living and quality of life commensurate with much higher "incomes"---all because they play the "we're a small business/corporation, but look at our low profit margin" game to the hilt.
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Old 10-19-2011, 02:49 PM   #57
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Quote:
Originally Posted by Mr. Kotter View Post
It's incredibly disingenuous and misleading to decry "low profit" margins on one hand, while simultaneously ignoring siphoning of profits for exorbitant salaries and benefits by claiming them as operating costs/expenses. Today, many corporate farmers and ethanol producers are great at doing this very same thing. They claim...."poor, poor, pitiful me!" on the one hand, while writing off "capital investments" and business "expenses" that provide them with a standard of living and quality of life commensurate with much higher "incomes"---all because they play the "we're a small business/corporation, but look at our low profit margin" game to the hilt.
Just like you play the poor beleaguered teacher game to the hilt. Sounds like rational self serving human nature to me?
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Old 10-19-2011, 02:49 PM   #58
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Quote:
Originally Posted by banyon View Post
Exactly, you would think that these free market champions around here would applaud consumers becoming more aware of this phenomenon so we can achieve better price competition, instead of making excuses for the stations.
I have to agree with this post. There seems to be a lot of the "its not their fault" sentiment on this issue, when the real reaction should be more along the lines of "its part of how they make money".
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Old 10-19-2011, 02:49 PM   #59
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Quote:
Originally Posted by Mr. Kotter View Post
It's incredibly disingenuous and misleading to decry "low profit" margins on one hand, while simultaneously ignoring siphoning of profits for exorbitant salaries and benefits by claiming them as operating costs. Today, many corporate farmers and ethanol producers are great at doing this very same thing. They claim...."poor, poor, pitiful me!" on the one hand, while writing off "capital investments" and business "expenses" that provide them with a standard of living and quality of life commensurate with much higher "incomes"---all because they play the "we're a small business/corporation, but look at our low profit margin" game to the hilt.
I do think corporate salaries are too high, but that's not an issue for oil majors specifically, it's across the board for large public corporations.

And I have noodled a bit on what to do about it, but it's not remotely easy. What was Steve Jobs worth to Apple? In all seriousness, they could have paid him a BILLION dollars a year, and I think there'd a reasonable argument that he was worth every penny.

There's various things you can do to try to limit excesses, but none are easy. All have work-arounds, or would likely be counterproductive in the long run. Ultimately, the best answer may simply be to let the marketplace decide -- by letting investors choose not to invest in those companies that they think aren't run with a sufficient emphasis placed on returns to shareholders.
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Old 10-19-2011, 02:49 PM   #60
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Quote:
Originally Posted by Mr. Kotter View Post
It's incredibly disingenuous and misleading to decry "low profit" margins on one hand, while simultaneously ignoring siphoning of profits for exorbitant salaries and benefits by claiming them as operating costs. Today, many corporate farmers and ethanol producers are great at doing this very same thing. They claim...."poor, poor, pitiful me!" on the one hand, while writing off "capital investments" and business "expenses" that provide them with a standard of living and quality of life commensurate with much higher "incomes"---all because they play the "we're a small business/corporation, but look at our low profit margin" game to the hilt.
I hate to tell you this, but E&P is EXTREMELY expensive and sometimes the E part leads to absolutely nothing. These companies have massive costs excluding those meanie CEO salaries. Exxon Mobil's CEO made something like $30 million last year, and of that, $2 million or so was salary. Revenue was, what, $350 billion?

I realize this numbers won't mean anything to someone having an emotional reaction, but they are what they are.
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