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Varchild2008 (84.02)

Pump Pricing for Dummies

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March 11, 2012 – Comments (5)

So just to summarize....

Just because a Barrel of Oil is 42 gallons and costs $105 does not mean you can expect to pay $2.50 when you fill up your gas tank.


NO!

Doesn't work that way.....

really this stuff isn't hard.

Any cost incurred by the Oil company to Refine, reformulate, and ship the Gasoline to the Gas Stations
is cost that has to be covered.  No one wants to take a LOSS on selling you Gasoline at $2.50. No one wants profit margins to drop heavilly into the red.

So...Whatever the Refining Costs + Reformulations Costs + Shipping Costs has to be added...factored.

If we assume about 50 cents (hypothetically speaking) per gallon of gasoline is State + Federal gasoline tax....

Here's what you have:

$2.50  +    .50   TAXES =    $3.00

But, you go to the Gas Station and you end up paying nearly $4.00 a gallon..... not $2.50 + TAXES.

Why?

Cause again...  The costs of shipping, refining, reformulating basically cost close to $1.00 a gallon.

Hence...  You reduce those costs.....standardize the Formulation so Refining drops in cost and so on and you SLASH the price at the pump by dang near a BUCK.

So that $3.75 a gallon price.....  instantly becomes $2.75.

And that brings us dang near close to the $2.50 a gallon price target practically over night.

5 Comments – Post Your Own

#1) On March 11, 2012 at 3:21 PM, Varchild2008 (84.02) wrote:

Also understand that OIL prices are cyclical and fluctuate constantly.

You do not and should not start at $2.50  multiply it by 42 gallons and then try and figure out how to get there.

Wrong!

You simply take the ACTUAL pump price of say $3.80 and subtract it by $2.50 (your goal) and you have $1.30.

That $1.30 is what consists of a combination of expenses incurred by Oil Companies to get the fuel into your Gas Tank + State and Federal Taxes.

Assuming we can do nothing about the State and Federal Gas Taxes...we may have to cut 30 - 50 cents off  (cause we can not impact that unless State/Federal Government cuts the taxes)...

It leaves us with $.80 to a $1.00 worth of expenses that we can impact.

The biggest way to impact that is cutting down on reformulations.

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#2) On March 11, 2012 at 3:26 PM, Varchild2008 (84.02) wrote:

Supply in America will SKYROCKET  when you cut down on the Reformulations..

Have to factor in that as well...

Cause right now Oil companies are shipping...exporting.....loads of oil overseas....

Why?

Cause it dang near costs to much to sell it here in America having to reformulate dozens of different ways...

It is far too expensive versus how cheap it is just to ship it and sell it...no EPA regulations over seas to worry about..

What happens when we standardize reformulations?

We strip out the incentive of Oil companies to keep supply artifically lowered by shipping out OIL for profit overseas....

Now they will be incentivized to sell that oil here at home, boosting supply, and thus dropping the Barrel of Oil price down.

So to get to $2.50 instead of $2.80 - $3.00, you have to consider a 10 to 20 cent added benefit by supplies jumping up....

As oil companies will start pushing more product here.

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#3) On March 12, 2012 at 2:16 PM, ikkyu2 (99.19) wrote:

Son, oil isn't gasoline.  A barrel of oil has gasoline in it, but it doesn't have 42 gallons of gasoline in it.  Refining is the process by which the gasoline is separated from the other components of the oil, not a process by which gasoline is 'made' out of oil.  And refining doesn't get cheaper just because you 'standardize' the process somehow.  Refining takes energy.  In fact, as the quality of feedstock deteriorates, more energy has to be used to extract a proportionately lower amount of gasoline.  You can google 'crack spread' for a brief education on this topic.

I don't mean this the wrong way, but sometimes I wonder if you are aware just how absurd your posts look when you make fundamental mistakes like this and then drag it out for 40 paragraphs.

For instance, the idea that Exxon Mobil, a $200 billion market cap company, has never considered trying to reduce the costs of refining?  Do you really believe that?

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#4) On March 12, 2012 at 2:44 PM, CluckChicken (28.48) wrote:

Depending on type of oil used you get between 20 and 22 gallons of gas per barrel of oil.  Desiel, jet fuel and heating make up another ~20 gallons and junk oil that utilities tend to burn make up the rest.

The problem lately has not been the supply of oil but more so refining capablity.  Refineries have been closing down across the country, just in the last year 3 of the 4 sites that supply the east coast have closed.  If you think gas prices are high now just wait till the next major hurricane plows into the gulf which now has the vast majority of US refineries.

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#5) On March 12, 2012 at 4:20 PM, Varchild2008 (84.02) wrote:

"Son, oil isn't gasoline. A barrel of oil has gasoline in it, but it doesn't have 42 gallons of gasoline in it. "

Uhm that's already been covered SON in this post I wrote and the previous post I wrote.

It falls into the category of things that explain why you can not just assume Gasoline at the Pump is $2.50 if a barrel of oil is $105.

I covered that SON.

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