Virginia Transportation Funding Deal

Gasoline prices have historically been the most manipulated for marketing reasons. Oil companies benefit from lower gasoline taxes, it lowers cost without cutting their profits and increases use. I'm sure the oil companies who finance the right wing politicians to lower gasoline taxes will help make that look effective by making sure pump prices decline. Easy to do since oil companies own a very larger percentage of the retail gas stations.

That more gasoline usage is bad for US environment, economy and national security is of no concern to the right wingers and the oil companies who represent an anti-American alliance of ideology and profit.

 

I think oil companies profit more from high gas prices. First off, demand only falls a little bit*. Second, they raise the price at the pump to cover the increase (and then some). Every independent gas station has to do this else they go out of business. It is rare to see a gas station shut down.
But then the big oil companies also profit on the increase in per barrel world oil prices. An increase that is all profit since it has nothing to do with the cost of drilling and pumping the oil (in the short term).

* Back to demand. see the graph in this article.
Peak US Oil Demand And Oil Prices - Business Insider
You could go to the trouble of plotting out the price times the quantity shipped and prove that more dollars are made when the price is higher. Or you could just look at the price scale on the left and see how it varies from $40 to $140 (a range of over 3x...even 2x removing the spikes) while the demand scale on the right only varies from 17.5 to 21.5 (a range of about 20%).

It is a silly assertion that Republicans want lower oil prices to benefit oil companies. They want lower oil prices to benefit the entire economy and all consumers. Yes, this is at odds with benefitting the environment, but you have your math backwards, IMO.


Mike

 

It depends on which oil company, and how much of the reserves they own. When oil prices go up, those owning reserves make larger profits on the gain in value. Aramco (the Saudi oil company) and other OPEC entities hold much of the balance of reserves. Higher prices mean unconventional oil like bakken shale and oil sands become more profitable. This is the same as gold miners making more money as the price of gold goes up if they own the mineral rights.

Gas stations are declining though, you just aren't noticing.
How many gas stations are there in the U.S?

Exxon Mobil profits are down
Exxon Mobil Corporation (XOM) Q2 Earnings Preview: Lowest Profits Since 2010 Due To Decreased Production And Hike In Crude Oil Prices
Much of the profits have to do with refining not production (owning easy to get to oil in conventional wells). Oil prices should continue to rise with dollar inflation, plus a premium for unconventional oil.

That is true for aramco, not necessarily US oil companies who must buy oil. Refining profits can be made on spread between light sweet and heavier oils.

Yep opec with conventional oil makes a great deal more profit with higher prices as long as demand is there. I would not cry for US oil companies, they can make plenty of profit, but high prices are not as good for them as moderate prices.

Absolutely agree here, but would not just say republicans, many politicians. The question really is can you lower oil prices, and the only way is subsidies like price controls. We should have learned by studying the history of the 70s that this simply increases demand, imports, hurts the economy in the long term.

 

All higher oil prices are passed along to the consumer as higher gas prices. When has an oil company EVER said, world oil prices have gone up too much for US consumers to handle so we are going to drop prices and sell at a loss? NEVER.
In some cases the higher oil prices go to some foreign oil company. But, (on average) the net change in oil company profits is zero (plus or minus catching the swings in the right place) when they have to buy imported oil at ahigher price. But every oil company pumps some of its own oil somewhere and the increased world oil price goes directly into its profits. Higher prices means marginal wells become profitable to pump. Lower prices means marginal wells may need to be shut down and capital has been wasted. Rising prices means mistakes on whether a well is profitable or not can be convered up. Dropping prices the opposite. These dynamics things have nothing to do with imported oil (other than the world oil price is controlled by others).

Mike

 

They will of course get passed along to consumers. The law actually states that an oil company can not sell its oil to its own refineries at less than the market price. When the market price goes too high though it is not good for US oil companies. They don't own all the oil they refine and sell, they need to pay market prices for this difference in oil. That is why profits may go up when prices go down. When they own unconventional researves though higher prices drive more production. Exxon for example just last week bought into some unconventional oil sands researves expecting oil prices to stay higher than production costs.

It is a really bad mistake to ignore imported oil when it comes to policy moves. Any policy that thinks it can lower oil prices by increasing north american production ignores all of the cartel economics involved. The only way oil prices go down with a cartel is by dropping demand.

Things tried by nixon and carter. Price controls to hurt oil companies profits, simply shifted oil companies to foreign oil, where profits could still be made. Wind fall profits tax, simply shifted production to foreign oil. Both of these directly hurt the US economy by sending more money for imported oil, and growing dependancey, along with creating artificial shortages. Allowing the market price to hit consumers does in the longer term reduce demand. The invisible hand though is hurt by subsidies and opec. The correct free market price of oil in the US should be higher, for demand to properly respond to pricing signals. This has nothing to do with oil company profits. I never see the anger to go after say the windfall profits of apple or google. We live in a capitalist society. It is likely with peaking us demand us oil company profits will fall, although they will still be quite high. Policy should not be aimed at punishing an industry because it is profitable, it should be about further reducing oil demand because it hurts the us economy.

 

Gas usage is very elastic in an economic sense, we waste a lot gas so people can cut back a lot of gasoline usage when they perceive prices as high without impacting their necessary driving.

But entirely accurate though I would say right wing politicians as oil and coal state Democrats tend to be vote with the right that does things like tax high mileage cars like Prius while they lower the gasoline tax which promotes increased usage which benefits the oil companies. The link between financial payments by oil/energy companies is direct and very much quid pro quo. The oil companies expect results for their payment, lower oil taxes, elimination of environmental safeguards, lower fuel mileage standards, oil wars to secure supplies. It's pretty clear that right wing in the US votes for all that.

 

I fully support an effort to give you a receipt and/or information on what you are paying most people don't realize what they are paying for ethanol or tax. I don't think knowledge would lower gas prices though. That would need to be regulatory.

If you look at the delta, california charges about 30 cents more tax per gallon of gasoline for gasoline than virginia, but they payed this week on average 48 cents more per gallon of gasoline. This can partially be explained by the regulatory environment in california requiring special blends, and attitude of the refiners that in the future they will make lower profits, so they are under-investing to take larger profits today. Regulation in california reduces competition that increases prices.

 

Look at the graph. Smooth out the peaks and valleys. Then calculate. I've down it below.

Peak US Oil Demand And Oil Prices - Business Insider

When the price of oil about doubled (very roughly), the usage dropped by 10%.
So (very roughly) in 2006 daily revenue was $60 * 20.5M and in 2013 it is $100 * 18.5.
This is from $1.23B to $1.85B. About half is from imported oil. So domestic US oil companies (excluding refining and retailing) had their income increase from $600M to $900M per day just based on the world oil price. (Actually more than that because domestic oil production has increased and imports have dropped) Yes, there are some new wells that are more expensive per barrel, and there are different prices for different grades...but most of that increase is with no additional cost per barrel.

Tell me again why oil companies want lower prices? With higher prices they get ~$100B more per year than with oil at half the price. Yes, they want lower taxes...but pretty much every industry wants lower taxes on themselves.

Mike

 

Sorry, didn't realize you were responding to someone I had blocked. I agree with most of what you say. Its OPEC not US oil companies that raised the price, by setting production. There were lots of things going on to spike and trough the price in between. The US major oils buy a great deal of their oil. Spikes cause problems in refining profits. Sure US majors like slowly rising prices. If you look at their charts you will see costs going up. Refiners like valero invested in the ability to refine heavier crude, did well on the spread between brent and the harder to refine stuff. Refining profits have not fallen as much as lower demand would indicate because these refiners are now exporting more products.

Well they would have if the new oil didn't cost them anything. A major portion of these companies profits though come from the upstream chain.

Huh? All the fracking is more expensive. Oil sands are more expensive. Production is up, from a drastically decreased level. In 2012 60% was domestic though.

Why doesn't Opec set the price at $300/bbl? Is that your question. Because if increases are too fast then countries substitute or conserve away. Low prices drastically increased oil use in the US in the '90s. Raise them too fast and you get recession. This is exactly the reason the us government should raise the oil tax.

 

Pick a city in northern virginia and compare it to LA, you are going to find a bigger gap than the tax. There are many different summer blends, each at a different cost. CARB somehow mandated 18 different blends in california, one thing that makes the price go up. IIRC, Northern virginia also pays higher gas taxes than the rest of the state.

You are probably right that reformulated in summer costs about 20 cents more than non in virginia.
From last summer, milwaukee
Reformulated gasoline is adding to pump price woes
That said at least for the Milwaukee blend it averaged 10 cents a gallon over the year, but gets as high as a 25 cent/gallon premium when the switch over occurs.

 

Yes, but do the math on the gross numbers I provided. And then assume no change in imports. Same higher profits. The additional domstic oil (from new technologies like fracking) is what is (mostly) causing the shift away from imports (besides lower demand). The numbers I gave $1.23B to $1.8B per day, essentially assumes no shift in domestic/imports. Fracking is in addition to this. Yes, it is lower profit per barrel...but still profitable at these prices (else they wouldn't be doing it)

Of course OPEC is smart enough to know that way too high prices will cause a faster move away from oil, massive R&D on lots of technologies, etc. Over the past few decades a casual observer might even look at the rise and fall of oil prices and think that the falls have been timed fast and deep to bankrupt alternative energy just before they get critical mass.

Mike

 

Hi Mike,
I didn't realize when I responded to you that you were not responding to my post, but to someone I have blocked. I just wanted to point out some of the nuances. Reduction in oil used in the US between 2004 and 2013 has to do with many factors. One is the increased biofuels mandate, which has led to some substitution. Cash for clunkers and new cafe standards have raised the fuel economy of the fleet, but the average age of light vehicles is over 10 years, so cost of new vehicles are slowing this increase. Increased oil prices are a key driver for a more efficient fleet.

U.S. Field Production of Crude Oil (Thousand Barrels per Day) In 2013 US oil production is back up to the domestic oil production that the USA had in 1996. This is far above 2005, but is 2 million barrels a day bellow production in 1980.

If oil prices were back to the price they were in the 1990s, then much of the oil being developed now would be too expensive. Oil companies still were able to make large profits in the 90's though. Our domestic policy should not be built on the assumption the US government should be managing oil companies profits. Those were mistakes of the 70s, that hurt the country a great deal. Higher oil taxes would likely be good for the country, but bad for oil companies. Keystone pipeline would be good for the country and oil companies. Doing both independant of what it does to oil company profits would be the correct path, but the politics of Nixon and Carter seemed to say that we should attack oil companies even if it hurts the country. Really dumb to follow these failed examples (let's not build keystone, because it would help the oil companies, even if it enhances the US's economic security versus opec and creates jobs).

The fall of oil prices was timed by opec, but cheating had it fall much greater than they planned. They then tightened supplies, and came a spike after the trough. The earlier spike had to do with the unstable opec governments in the middle east and Venezuela, along with financial speculations by the investment banks and weak dollar federal reserve policy.

 

I am always in favor of allowing the public more information. For virginia though, don't blame the epa for most of it.
RFG Areas | Fuels and Fuels Addtives | US EPA
Only 9 counties are mandated by the epa. The rest of virginia that uses reformulated gasoline opted in. These are the required counties

Reformulated gasoline does indeed reduce voc, and the mandated counties all should reduce these. There is an opt out procedure for counties if they can reduce voc in other ways. Houston for example found other ways to reduce voc, but still uses reformulated gasoline, because these methods did not cut levels far enough. The one thing that oil companies and consumer groups do want is to standardize the blends. Having so many different blends, that each state seems to require, adds a great deal of cost, that is passed onto consumers.

One thing about E10 though is it increases VOC pollution, making blenders create more expensive blends to hit the reformulated goals. Lowering the mandate, and allowing summer blends to lower ethanol content would lower costs. The EPA likely needs to reexamine the oxygenate requirement. Its an anachronism, as electronic fuel injection removes most of the environmental benefit. Cars like the prius with very low evaporative emissions, don't really act any differently with reformulated gasoline. As time goes on and more of the fleet has better sealed tanks, the reformulated gas standards can be rolled back to the most polluted cities.

 

Yes, I get all that.
My point was that the "why" is a different topic.
I was just saying...from the actual numbers...that increased oil prices barely affect demand. There aren't too many people like you and me who actively want to reduce oil usage, just to reduce it. The price almost doubles and the demand only drops by ~10%. Thus, a rational conclusion, if I owned an oil company and wanted the most profit next quarter, I would want to have higher, not lower oil prices. All costs (essentially) would be the same, income would go way up, volume would drop just a little. (long term issues of conservation, replacement etc would affect long term volume...but of course every so often I could give everyone hope and drop prices for a while)

That's it. My whole point. (I agree with all the nuances, etc. But IMO they don't enter into the above equation except as maybe a second or third order effect)

Mike

 

Yes, I completely agree. If you are only looking at the short term, demand for oil is fairly inelastic. Raising the price is going to get you more revenue and profits.

I don't think we are in the minority of wanting to reduce oil use, it is probably the majority, but problems come up when you start talking about how to get there. I don't want to reduce oil use, simply for oils sake, though. I understand that if we keep using it at this rate it will get very expensive. Using it this inefficiently also adds a great deal of pollution and ghg.

You will find many on the left and right and independent advocating for higher oil taxes. The arguments come up with how you are going to use the money and how big those taxes will be. Many politicians have a great deal of trouble with the truth and say things like we just need to drill more, or set higher standards. That is magical thinking. Its going to take some pain.

 

And the numbers keep creeping downwards.