President Biden is said to be pondering an "inflation offensive" that includes an FTC investigation of anti-competitive behavior in the oil and gas industry. This got me curious, so I took a super-simple look at the average markup for gasoline.
Here's what I did. I retrieved the cost of a gallon of gasoline (regular all formulations) and the price of a barrel of oil (West Texas Intermediate). I divided oil by 42 to get the cost of a gallon of oil, calculated the difference, and then subtracted taxes. The remainder was the refining/shipping/etc. markup for converting a gallon of oil at a refinery to a gallon of gasoline in consumers' hands. Here it is:
Hmmm. The markup has gone up by 20-30 cents since the beginning of the year, which is a little suspicious. On the other hand, this is obviously a pretty volatile series, and the markup today isn't out of kilter with the past few years.
Still, there are two obvious things to look at. First, why has the markup trended upward from 50 cents during the 1992-2010 period to about 80 cents today? Second, why the further spike in 2021?
There's nothing much Biden can do about the price of oil, but investigating the big refiners seems justified. Maybe there's nothing here, but it sure looks as though we should at least be asking why the markup on a gallon of gasoline is so much higher right now than it was a decade ago.
See Robert Reich's latest (https://robertreich.org/) on how inflation is not squeezing profits.
In the case of oil products, the oligopoly - and actual cartels - come in before the gasoline arrives at the gas station.
short answer, because they can
😉
To add to this: When people are already angry at someone else (in this case at Joe Biden) why should the oil companies not take advantage and harvesting a little extra money in Joe Biden's shadow?
BTW I remember someone at NPR saying that high gas prices are correlated with high profits for the oil industry (years ago, when prices were high, probably higher than now if corrected for inflation). So this is probably not new (neither are the cartel problems of course).
Well here regardless of the reason you have the tension between Populism and achieving carbon transition. It is an unmitgated good for petrol to be more slowly on real terms more expensive as that pushes transition. Doesn't matter really the why.
But the population at large hates this of course.
Count me in as a face in that crowd. But then, I grew up with no running water and no electricity, so maybe I've gone native.
Now take a look at how west coast refineries keep getting purchased and then closed as “uncompetitive”, or the ones that are shut down for maintenance just they switch to summer blend.
I would assume (I don't work in the industry) mark up would include:
- labor costs
- shipping
- health care
- regulatory
Further, during Covid demand was rock bottom and profits at these firms were low often negative. Bottom line I don't find any of this surprising...
Someone on Wikipedia said that a 42-gallon barrel of crude yields only 19 gallons of gasoline, so there goes your crude math.
So dose energy.gov
https://www.energy.gov/eere/vehicles/fact-676-may-23-2011-us-refiners-produce-about-19-gallons-gasoline-barrel-oil#:~:text=button%20button-,Fact%20%23676%3A%20May%2023%2C%202011%20U.S.%20Refiners%20Produce%20about,from%20a%20Barrel%20of%20Oil&text=A%20standard%20U.S.%20barrel%20contains,an%20additional%206%25%20of%20product
True, but for Kevin's purposes his math is sufficient; so long as he compares the same way every year (which he does).
That's not what they're saying... they're saying a 42-gallon barrel actually yields 44 gallons of products due to refining gains. The 19 gallons is the proportion of the aggregate output that gets made into gasoline rather than jet fuel or diesel or something else.
They are saying that the barrel doesn't get turned into 42 gallons of gasoline, so Kevin's price math doesn't hold up. If we had an aggregate price for all the products, we could talk about how the markup is changing.
Doesn't that depend on the quality of the stuff? And is this an average? I imagine that bitumous crude really drags it down, if that's the case.
There's too many parts of the oil refining story to get a meaningful "markup" from Kevin's approach. It's possible he's badly underestimating how much the price of a barrel of oil contributes to the cost of a gallon of gasoline. It's not one barrel of oil for 42 gallons of gas, as Kevin supposes.
And as a percentage of the price of gasoline?
And how have oil refinery wages changed? For the delivery drivers? The cashier? Have there been further pollution demands placed on refineries? Etc etc…
I'd like to see a calculation that excludes California, for three reasons:
First, beyond simple taxes, gasoline prices in California include costs to purchase carbon-emission credits under California's cap-and-trade program. At the August 2021 auction, permits sold for about $23 per metric ton of CO2, which I believe translates to roughly 20 cents per gallon. ( https://ww2.arb.ca.gov/sites/default/files/2020-08/results_summary.pdf )
Second, California gasoline prices also include the cost of California's Low Carbon Fuel Standard. The idea behind LCFS is that, for each gallon of gasoline sold, a refiner must also sell a specified amount of a low-carbon or zero-carbon fuel. If high prices cause consumers to shun the low-carbon or zero-carbon fuel, the refiner must subsidize its price, possibly by raising its price for gasoline.
Third, gasoline prices in California may be affected by the alleged "Mystery Gasoline Surcharge". Dr. Severin Borenstein of the University of California Energy Institute defines it as follows: "the Mystery Gasoline Surcharge (MGS) is the premium of California gas prices above the rest of the US, AFTER accounting for the fact that we have higher taxes and environmental fees, and we use a cleaner gas formulation. Those cost factors currently justify a $0.72 differential between California and the average in the other states. But this morning that differential is $1.18. The 46 cent difference is the MGS today." ( emphasis in original, source: https://energyathaas.wordpress.com/2020/02/10/californias-mystery-gasoline-surcharge-strikes-back/ )
I know why!
Because the market can bear it.
And SHAREHOLDER VALUE!
Isn't petrol spiking as retaliation for El Pepe Maximo taking away the keys to Mohammad bin Salman's bonesaw
I have noticed over recent years that the spread among gasoline grades has ballooned. The differences between regular, mid-grade, and premium used to be 5-7 cents per gallon. Now it's 35-40 cents. Is Kevin's analysis taking that into account?
Here in Chicago they dilute it with -- ugh! -- ethanol. I'd guess that this is a function of relative scarcity, sweet crude being the most limited in supply
1. The content of a gallon of gasoline has changed over time as environmental regulations have changed.
2. The regulatory environment in which refineries operate has changed. They need to be environmentally cleaner and safer for workers. Added costs.
Doesn't that depend on the quality of the stuff? And is this an average? I imagine that bitumous crude really drags it down, if that's the case.
I keep saying this, and I will keep saying this to the day I'm off-line for good: If Hydrocarbon fuel didn't exist people would discount them as the stuff of science fiction. Per volume, they are the most energy-dense of all chemical fuels, they are easily stored and can be stored for long periods without significant degradation of performance, and getting useful work out of them is relatively low-tech. And that work can be delivered on demand in a mattter of minutes or seconds. If it weren't for their environmental side-effects and their decidedly limited supply, they'd the ideal source of energy. We won't see a comparable alternative until we get into some serious nanotech, and that might be a while ...
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