Do They Think Our Memories Are That Short?

[iCe]

Mike. Shareholders drive all publicly traded companies to conduct business and operations the way that they do. Oil companies turned around when the CEO's and upper management began to be accountants. By turned around, I mean became more profitable. I've seen earnings in the red and it ain't pretty. Back in the 80's it sucked to be in the business. It turned around. But it sucked. I didn't hear anyone complaining about that...

If you limit profit then you are limiting the way our free market economy works. That would not be good. The best way to lower profit margins is to increase competition or decrease the demand for goods and services. Competition has been steadily decreasing over the years due to mergers and aquisitions.

[jeffkohn]

We're not talking billions in cash flow... we're talking $10B+ in profit PER QUARTER. Maybe I'm ignorant to the big business picture, but name just one business that makes $10B+ in profit in a single fiscal quarter.

Total dollars isn't really meaningful except to tell you that it's a really huge company. Earnings per share is the number that really tells you how much profit they're making, and $1.71 isn't so high although it is somewhat above average.

As for how pricing at the pump goes up versus down, it's a highly speculative market. And these days production capacity (which is barely adequate) has as much to do with it as the price of crude. Prices _have_ come down, a 33% price drop is pretty significant after all. Honestly though I don't think they're going to come down much more unless one or both of the following happen: 1) more stability in the middle east; and 2) we build more refineries.

[hmiles619]

Originally Posted by metagore

Not flawed at all... you're assuming that a 'penalty' would mean less investment by the company to sustain their existing profit margin. Is a 12% profit margin necessary for the oil industry to sustain itself? (honest question, not sarcastic at all ) If not, does a 12% margin indicate that they are in a competitive market? When was the last time that the any oil company posted a 'loss'? Should it be a concern that 9 of the 10 largest companies in the world are oil/auto? (I'm no fan of Walmart either)

Of course I'm assuming that a penalty would mean less investment....because it would. If you disagree with that statement, I suggest that you head down to your local community college and take a few economics classes.

[jeffkohn]

Really it makes you wonder why you can see the same branded station selling gas for $209.9 and go less than one mile and see the same company branded gas selling for $202.9. They can't plead delivery costs make the 7 cent difference, they can't blame that it is a different company, they really can't say that it costs much more to run one station vs another because the costs between the two are probably almost exactly the same no it comes down to who thinks they can get away with more and find lazy people who will not drive that 1 extra mile to save 7 cents a gallon! Right now you can go around the DFW area and I bet find up to a 15 cent a gallon difference for the SAME GAS!

Yeah, right, that's almost as ridiculous as finding different prices for a gallon of milk at Randall's versus Kroger, imagine that. Surely you're not suggesting they should all get together and set their prices; last time I checked there were laws against that.

[jeffkohn]

Go back say 15 years or so and see what their margins were and how happy they were, many larger city public libraries will actually keep annual reports on file for many years in their central library, and look at those margins now!

Back when the price of crude was $10/barrel the oil companies were hurting pretty bad, in fact this area was pretty hard hit by that and a lot of people lost their jobs.

[hmiles619]

(I'm no fan of Walmart either)

Didn't see that coming.

I bet you sure do enjoy the lower prices on goods because of them though.

[Duffy Pratt]

Greed is what drives pricing in lots of market. The question is almost always how much you can charge for a product without cutting into your market share. It would be alot more troubling if there weren't local fluctuations in the gasoline markets. That would be a sign that the stations were not competing with each other. As it is, its pretty easy to see that they are competing with each other.

When the prices were skyrocketing, I'm sure you also noticed after a while that stations were running out of certain kinds of gas. My guess is they raised their prices because they anticipated a shortfall of supply. The fact that they were running out of gas means that they probably should have been charging even more than they were. (A station that is out of gas stops selling coffee, doughnuts, soda, etc...) With prices going down, there is downward pressure on prices of course. If the station drops prices too quickly, it will take a loss on the gas it has stored. That puts the brakes on immediate price drops. What it takes to drop the prices in that instance is for a station owner to decide to cut his present margins on gas in the hope of increasing his market share and his profits from derivative sales. Basically, I'm saying that there are pretty good economic reasons for the prices at the pumps to rise quickly with rising prices, and to fall more slowly.

Duffy

[DEMDeepEllumMusic]

Want to talk economics well lets talk economics:

What about Supply and Demand?

OK when Katrina Hit we had a squeeze on supply, actually it was the end of the summer driving season and demand was falling but the oil companies took full advantage of the situation and pushed prices up to record levels on refined products (even California and other west coast/Hawaii markets had priced pushed up when they had no real direct relation to what Katrina caused in damage since they don't get product from that market but have refineries on the west coast and the raw crude comes in from either South America or the Middle East. So that is one negative in the Oil Bidness Column.

Now yes Katrina did cause some production disruptions in the gulf that took up to a year to re-establish but in the total global aspect of supply that is just a garden hose of volume in relation to the hundreds of fire hoses of volumne of oil being produced elsewhere but the oil companies made full use of the news to push up prices. What is really odd is that even after taking on all of the expenses to repair those fields the oil companies were blowing thier profit records out of the water both in gross dollars and margins.

Now we have the refineries along the gulf coast that were effected. Now I agree 110% in shutting those babies down and getting ALL of your people to safety when a storm or two like Katrina and Rita were heading straight into where the plants were but then no refinery was at ground zero when the hurricane hit and they are designed to take some pretty high winds. Now it isn't easy nor instatanious to bring these huge bemouths back on line so there was some costs and delays on doing that but that should be considered the cost of doing business along the Gulf Coast.
Never did see any real shortages up here that lasted more than a day which actually happens all the time when localized demand tops the delivery schedule so your theory blows!

Never did see a station out of all grades of gas and you wouldn't know that they were out of gas of anytype until you pulled to the pumps, this was nothing like the 70's gas shortages at all though the Oil Companies and the news people who were puppet mastered by them made it sound like it could happen at any turn of the weather.

What irks me is that they werer pushing up the profit on gas in their tank at the local outlet which had all the associated costs determined-it ain't like XYZ oil company will come back and say that last 5,000 gallons of 87 octane fuel that you purchased for $1.65 well we are going back and charging you $1.77 for it, no they paid $`1.65 *then add tax and their profit when they decided to sell it at $2.25 so why did they punch it up to $2.35 or more before even adding one more drop of gas to the storage tank? GREEEEEEDDDD PURE AND SIMPLE!

Now right now the reason that crude is down is that the US has had a record warm and unseasonable Fall and early part of winter *till last week, as also has Europe for the most part, not sure about Mother Russia and China but Moscow did have warmer than normal temps a couple days ago. That along with the economy not going as gangbusters as DC keeps trying to convince us it is doing has reduced demand and OPEC has been a chained dog that threatens to bite but keeps pumping every gallon of crude that they can sell since a lot of refineries don't like it because it is sour and not sweet! A lot of US refineries won't touch over half of OPECS production because they don't want to or cant deal with the low quality and high sulfur contect of the crude.

As to why doesn't the retailer lower his price when he gets a delivery of fuel that is lower than what was in his tank before, well that comes down to him trying to squeeze more profit out of it while he can because he knows that when GHJK down the street drops his price he probably will have a day or so before he has to meet the price if he still wants customers coming to his pumps. PEOPLE HAVE PRETTY MUCH BEEN AWAKENED TO THE MYTH THAT ABC's Gas is so much better than RST's Gas or XYZ's gas since in many cases the gas all comes from the SAME TANK FARM!!!!! Next time you ever drive by one of those tank farms look at the names on the sides of the TRUCKS LINED UP TO GET FUEL! Yes there are some slight differences as to additives/detergents but that is so minimal that it ain't gonna make a big difference in your car as long as it is 87 or 89 or whatever octane it pretty much is the same stuff!

Now you talk about margins- MARGINS ARE %'s not #'s If the station owner is paying $2.00 a gallon and has a 10% margin he probably was selling gas around $2.50 *taxes are around $.29 a gallon, now if his cost is down to $1.60 (20% drop in cost) He/she should be selling it around $2.05 a gallon and if it is down to $1.40 which many are paying on the spot market now or less http://tonto.eia.doe.gov/oog/info/twip/twip.asp
they should be charging $1.84 or so, so if they are keeping their prices above $2.00 that is pure GREED!!!! BTW that $1.40 price is NY delivery while Texas Delivery would be lower since the shipping of the oil from the refinery in Houston is included in that NY spot price.

The Laws of Supply and Demand refute what you are saying and there are no economic reasons for prices to rise faster than a shortage of supple or a spike in demand would cause other than the GREED FACTOR which also works in the dropping direction also.

You need to go read some good economic links sir!

[Duffy Pratt]

A station will only drop its price to increase its market share with respect to the stations that it is competing with. Dropping the price is pure greed as well, and there's nothing wrong with it. That is the way that markets work. If they can get rid of their supply at a higher price, and don't stand to make more, by selling more volume, at a lower price, then why would anyone lower their price?

When the wholesale prices drop, a station has two choices. It can keep its prices the same or lower them. The only good reason to lower the price is to attract customers away from other stations and sell more product, thus making more money. If they can continue to sell the same volume at the same price, then there is no reason whatsoever to lower the price.

Why would you ever expect a company to think, I just got this product at a lower wholesale price, therefore I am somehow obliged to lower my retail price in response?

Duffy

[hookem]

MSNBC poll

[hmiles619]

DEMDeepEllumMusic,
I think the problem in the mis-understanding here is how you keep saying that business is greedy. Well duh. Why would business not be greedy? Supply and Demand works because it is an incentive based system....what is the incentive? Money or profit. Greed as you call it.

Do you sell your pictures? I don't see a website on your profile, but let's say that you sell a 4x6 for $8. Why would you set your prices at 8 and not 10 or 6? It would probably be that you feel that you could make the most money at 8 instead of 10 or 6. Is that greedy? No, that's business.

Why do gas companies sell their gas at $2.25 instead of $2.15....well they want to make more profit obviously. THAT'S WHAT THEY'RE IN BUSINESS TO DO! They have an obligation to their share holders to make as much money as possible, or guess what....they'd have no shareholders. Who would invest 86 billion into a company that wasn't out to make as much profit as possible. It's simple supply and demand.

In fact, why don't you want to spend $4 for gas at the pump? You wouldn't be greedy would you? You're just trying to horde all of that money for yourself. I bet you want to be a billionaire don't you. How selfish of you.

The problem when you bring things like Katrina into this are things like "price gouging" which is the most BS term around. Price Gouging accusations by the government keep companies from raising prices when gas comes in short supply as what happened when everyone tried to evacuate due to Katrina. They ran out of gas because they weren't allowed to raise prices. The people that were willing to pay $5/gallon couldn't do it because the government would not allow those prices. These people ended up stranded on highways because they were out of gas. You can bet that if prices were allowed to raise up to $10/gallon, you'd see tankers full of gas driving down the highways to help these stranded motorists.

The free market will correct itself in most cases unless there is a monopoly or no competition of another form....but greed is the process that will keep everyone in check.

[DEMDeepEllumMusic]

Hollis you are confusing Katrina and Rita, Rita had the vast number of people stuck on I-45 and I-10 not moving anywhere and burning up gasoline. Too many people on the roads all at once and of course they couldn't just set with their engines off for 20 minutes because they just knew that it was going to start moving and that 2 seconds that it takes to start a car back up would set them so far behind.

There is a thing between a reasonable PROFIT AND GREED, notice in my example that the retailer had a 10% markup on his gross fuel costs which is a decent margin for the business, many retailers back before OPEC worked on margins of 5% or less on even lower gas prices you probably don't remember sub $.50 gas including all the taxes!

Those stations also sold mechanics services and batteries and other things to maintain a car while I bet you would really have to hunt hard to find a gas station that still sells batteries for cars and those products and services are the ones that really kept a gas station going not gasoline sales while the current retailers of fuel have found that the snack isle and coffee/drink sections along with alcohol sales keep their doors open not the sale of gasoline.
I tend to be a shopper who will bypass that guy who is charging 4 or 5 cents more per gallon for his gas than the guys around him, I have no reason to support his higher prices and if you look around there are a lot of people like me that drive right past them also.

I never mentioned price gouging which is a complete different animal and does not come under this discussion at all so go bury it in the backyard.

Also there would have been NO TANKERS heading toward the storm because the State Troopers would have stopped them before they got anywhere near the coast FOR SAFETY REASONS.

THE REASON THAT SOME FOOLS, which may include some on this board, RAN OUT OF GAS WAS THAT THEY WAITED TOO LONG TO LEAVE SO THEY WERE BUMPER TO BUMPER STUCK IN A TRAFFIC JAM THAT DID NOT MOVE AND BURNED THE FUEL UP WHILE NOT MOVING! If they had just turned their vehicle off when not moving and waited the 15 minutes without their airconditioners and other nicities they probably would have made it to safety without running out of gas-also helps if they had filled up a couple days before when they knew that they may have to leave at any time!

Oh by the way how does my making a decision not to buy at your inflated prices greedy? HAVE YOU EVER TAKEN A COURSE IN ECONOMICS IN YOUR LIFE? I happened to take a couple graduate courses under Dick Armey and I can tell you one thing the guy is smart!

[Duffy Pratt]

I tend to be a shopper who will bypass that guy who is charging 4 or 5 cents more per gallon for his gas than the guys around him, I have no reason to support his higher prices and if you look around there are a lot of people like me that drive right past them also.

This statement by itself supports the idea that there is competition between different local gas stations, and that consumers will tank up at different places according to different priorities. Some people will go out of their way to pay more, others are tolerant of paying a few cents more per gallon, and the stations set their prices according to how they would like to position themselves.

Duffy

[jeffkohn]

I tend to be a shopper who will bypass that guy who is charging 4 or 5 cents more per gallon for his gas than the guys around him, I have no reason to support his higher prices and if you look around there are a lot of people like me that drive right past them also.

If the guy across the street is cheaper I might choose him (as long as getting across the street isn't too inconvenient). But I've never understand the folks who will drive out of their way to save 3 cents a gallon. I've got better things to do with my time than waste it trying to save what ends up being less than 1 dollar per fillup.

Real estate prices can be a factor too, it costs a lot more to run a gas station in the Galleria area than it does in other parts of town for instance, so I wouldn't assume you know anything about an operator's profit margin just based on the price on the billboard.

[DEMDeepEllumMusic]

I am not talking about going "out of the way" for gas, just that I usually have a good idea about how soon I will need gas and I pay attention to what prices are in my part of town and I just may run up to say Target which may have a cheaper priced 7-11 by it and gas up when I go to visit Target or a similar business and drive right past several stations that are more expensive. Or if I am in unfamiliar territory or out of town I will make a mental note about what rates are running when I approach the town and then as I am in town I will notice what the rates are near my motel and while I am out and about and if I see a station that looks well kept and is several cents below the area I will cross the street or drive that extra 2 blocks to fill up there.

BTW I rarely if ever buy snacks at a service station!
As to the Location costs comment I thorougly understand those costs of higher land and such but if one station faces the mall or is on the malls property (used to be a station on NorthParks Parking lot until a few years ago) and another station is 5 or 6 blocks away and the one further away is 4 or 5 cents a gallon cheaper (same brand on station) why is it my purpose to support his decision to put the station there? (Usually those stations right at the mall are CORPORATE OWNED unless it just happened to be there before the mall came in and that is not supporting the franchisee at all anyway)