Wednesday, September 28, 2005

Don't Blame the Kwik-E-Mart Man

A couple weeks ago, the national average price for a gallon of gas was at $3.07/gallon, up 64% from $1.87 one year ago. Yes, we are in the post-hurricane world of $3+ gas, and we even have a popular new villain to boot: the price gouging gasoline store owner, he who took advantage of scarcity and soaring demand to make a quick buck. A few media reports on a handful of such individuals caught cheating has angered consumers and lawmakers alike. Meanwhile, the big oil companies, realizing a way to deflect blame, have latched on to this idea as well.

I recall seeing just last week a full-page ad in the paper in which the oil companies, presenting a united front, sought to distance themselves from the price-setting gas station operators. The idea was "Hey, these gas prices aren't our fault. Blame the gas station attendants for hiking up their rates!" This of course conveniently fails to mention that the seemingly "independent" retail stations must buy their gas at the price they are charged by their suppliers.

A lead story in Sunday's Business section of the Washington Post further rejects the idea that gas station owners are the profiteers they've been made out to be. See the accompanying graphic for an explanation of how the price paid by consumers at the pump is distributed throughout the entire gasoline production system.

While consumers are paying about $1.20 more per gallon since September '04, gas distributors and retailers have seen their share rise only marginally (5%), from $0.17 to $0.178. So where's all the profit going to? Well, where else but...
  • The oil companies. A year ago, they were collecting about $1 of each gallon sold. That number is up 46%, to about $1.47.

  • The refineries. Here is the big winner--last year, they took $0.28 of every gallon. Their piece of the pie has grown substantially larger, now at about $0.99 per gallon, a 255% increase!
So while gas prices may have spiked recently, and remain too high for the public's liking, you can be sure of one thing. The inflated numbers on those billboard signs aren't just a result of greedy gas attendants out to make a quick buck!


Hafiz said...

One story I remember hearing about was via the Daily Show about a man named Inder Parmar who lost his gas station because he refused to raise his prices in accordance with Getty, the company whose logos were on his gas stations. They said he violated his contract and they tore down his station with the help of a court order. So terrible...anyway, Jay, thanks for addressing this issue. I'm glad someone is sticking up for Raj Q. Patel.

Chris said...

good post. but another aspect you have to remember is that there is a great deal of speculation in the oil market. as a result of fears of supply-line trouble and production capacity issues, futures traders on the NYMEX effectively hike up the spot price of oil futures, and this also results in an increase in the price we pay at the pump. these guys also make a boatload of money on rising oil prices because they've been BETTING that it would happen via their futures purchases.