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View Diary: Exxon CEO: Oil Price is 9x Higher than Production Cost (75 comments)

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  •  the oil price is set by a scam (0+ / 0-)

    sure Big Oil tries to say that the price of oil is set by speculators.  It gives them plausible deniability.  All you need to know is that the price at the pump goes up in one day and drops over months.  Gouging pure and simple.

    •  dan667 - price at the pump (2+ / 0-)
      Recommended by:
      EthrDemon, martinjedlicka

      The retailers cost is determined by a contractual formula between the retailer and the refiner. Some contracts have a 15 day, and others a 30 day, weighted average of the closing price for oil on the NYMEX. Retailers don't receive gas every day so the cost of a new tanker truck load can be more than the last load by a significant amount if the spot price has spiked. The retailer will always charge enough to cover his costs of the gas stored on site and add the small retail margin he receives.  He will also make sure he is keeping his pricing up to date when prices are rising and will take some extra margin when wholesale prices drop, if local retail market conditions allow it. That's why you retail prices seem to rise faster than they drop when the price of crude changes.  

      "let's talk about that"

      by VClib on Mon May 23, 2011 at 08:36:22 AM PDT

      [ Parent ]

      •  uh, hun. (0+ / 0-)

        real market pressure would show the price go up at the same rate it goes down.  It just does not do this.  But Big Oil has certainly pulled the wool over everyone's eyes.  Gas costs are a scam.

        •  no this is simple... (1+ / 0-)
          Recommended by:

          A gas store owner buys 10000 gallons of gas at $3/gallon and sell it for 3.05/gallon.
          War happens in saudi arabia an price shoots up to $5/gallon.
          The stations next door sells gas for $5.05/gallon when they take delivery of the expensive gas, so now our lucky gas store owner can reap a windfall and sell his $3/gallon gas for $5.05/gallon. woo hoo, happy times!!!
          He sells all his gas and takes a new delivery of 10000 gallons of gas at $5/gallon and set the price at $5.05/gallon.
          Now there is normal profit again, but then all hell breaks loose! There is peace in saudi arabia and gas drops to $3/gallon again.

          However, all the gas stations in the neighbourhood has a big stockpile of gas they bought at $5/gallon.
          The're not going to sell this right away at $3.05 and thake a big loss, so price is sticky on the way down. As more and more stations are taking delivery of the $3/gallon gas which they can sell for $3.05/gallon the remaining stations has to sell their $5/gallon gas at a bigger and bigger loss, and hence the slow clomb down in price.

          no bad man in a back room twirling his mustache necessary.

          •  palop - thank you (0+ / 0-)

            You would think this concept wouldn't be hard to understand, but thank you for providing a very comprehensive example.

            "let's talk about that"

            by VClib on Mon May 23, 2011 at 10:16:57 AM PDT

            [ Parent ]

          •  ie a rigged system with plausible deniability (0+ / 0-)

            you think Big Oil is trying to stop this from happening?  Nope, they are reaping wind fall profits because of it.  It's rigged and price gouging.

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