by Jack Lee
Over the decades both small and large retail gas stations found it to be a big boost to their profits to spike pump prices whenever crude prices spike – even though there is a six week delay before crude is refined and reaches them.
Imagine if McDonald’s jacked up the price of hamburgers daily because of the changes in the spot price of beef. Of course if McDonald’s tried that we would likely go someplace else to buy our burgers. Competition forces McDonald’s to average out their cost of beef and keep a more consistent price for their hamburgers. Oil companies and their retail outlets don’t do that – they behave like a monopoly, coordinating pump prices: Gasoline prices are always quick to go up and they’re always slow to come down. It’s wrong and it’s damaging to our fragile economy.
Now here’s my solution: We use the power of the consumer boycott, but we do it differently than ever before. We boycott only half the gas stations in town until they pledge never again to spike pump prices based on a spike in crude. Instead they promise to use the actual wholesale price they paid for gasoline until those gallons of gas are gone. Now we’ve got half the stations acting appropriately, then we can boycott the other half until they agree to stop their price gouging.
This would have a domino effect and spread like crazy, IF….we’re informed well enough to pull it off. It’s simple, it’s honest and its capitalism at its best without any additional government regulations or intervention. And by the way, those boycotts where we didn’t buy gasoline on a Friday or a Saturday didn’t work because we were only delaying our purchases for a day, at the end of the month the gas stations still sold the same amount. However, my idea of boycotting half the stations at a time definitely will impact their bottom line and that’s how we get results!
LOL you know what really sucks? When your waiting to pump your gas, you get to the pump someone from the station tells you “sorry your going to have to wait just another minute to pump your gas”. So you wait and then while your waiting they actually jack the price up and then tell you “have a nice day”. Before anyone tells me they do not do that, I am here to tell you, I was that guy telling people to wait. I hated doing that to people so please do not take your anger out on the people who work at the stations.
What really pissed me off was they would jack the price on gas that was already in the tanks not on gas being delivered. The gas in the tank is already paid for.
http://energyalmanac.ca.gov/gasoline/margins/index.html
The total taxes we pay is .63 a gallon. The refinery is making .13 a gallon, I don’t know what the owner of the station makes but government is the worse offender.
The web site is from the State of California website.
Yes Harriet…I’m with you too. This is another problem to be addressed…excessive goverment taxes. My article is focusing on what I consider to be an unethical marketing practice that is by all definitions – monopolistic and we can use our consumer power to fix it, if we had the will.
Toby, I would be tempted to punch that guy out. He could at least wait until there is nobody around and then do it.
Sorry Jack, I guess my post was off the subject of the original post.
I was wondering about the gas already paid for in the tanks, In order for the owner of the station to have the money to pay the new shipment wouldn’t he have to raise the prices to meet his needed amount?
It sounds like they are paying in advance.
No problem Harriet and you’re right about the tax problem. We do have too much tax placed on gasoline. As for the owner of a gas station – hmmmm do we still have any Mom and Pop stations left? Well, anyway, lets say there are and if his purchase of 30,000 gallons for the next tanker load is going up 10 cents, that will be $3000 added to his usual cost of $102,000. I guess every little bit hurts, but I would not think it would be enough of a cash flow problem they couldn’t overcome it without spiking the cost of the fuel already in the tank. Most stations are part of a larger chain and a majority of these are linked back to the refinery and a majority of these are connected the oil drillers. Look at the number of Exxon, Chevron, Texaco, Arco Conoco-Phillips and BP stations we have. They are all part of big oil. There are smaller franchises like Admiral and Flying A, but they do a fraction of what the Big guys do.
http://money.cnn.com/2011/02/25/news/economy/gas_price_spike/index.htm
http://www.api.org/aboutoilgas/gasoline/upload/PumpPriceUpdate.pdf
(chart at bottom of page tracks gas and crude prices)
Keep in mind that the State of California has special environmental laws. Our gasoline has to be made in special batches. Gasoline prices can go up here just due to shortages in the supply of our special gas.
Well, here’s another idea.
We call for a day to NOT BUY ANY GAS. See if we can get a coordinated boycott, even for one day, even maybe for a certain time period during that day. If we can get enough people to do that, having publicized the heck out of it, it shows them we’re organized and we’re serious. And it’s short term, easier to do. A quickie boycott is good for beginners.
Now, here’s a little something from my “actor/activist” friend, The Reverend Billy Talen of the Church of Stop Shopping. Bill uses “whirling”. Whirling means, you go in, but you don’t buy. You look around, act distressed about the prices (or for him, the “made in China” tags), and you leave without a purchase. If you can get enough people to do this – drive up to the pump, get out, make the motions of starting to pump, then saying, “Oh my goodness, I can’t afford to gas my car!” and leave. Imagine this going on all day, or for an extended period of time.
As for groceries, when I buy anything at Safeway from now on, I’ll tell the checker, I came here to buy more, but couldn’t afford the new prices. I’ll tell them I’m on my way to WalMart to finish my grocery shopping. That’s perfectly acceptable as long as you are polite and considerate. We’ll see how long it takes that to get back to corporate HQ.
I supported Safeway workers when they walked the picket line, I’m hoping for some support now.
Thanks Jack, great idea! I think we can get us a convoy! I’ll catch you on the flip flop Rubber Duck!
Tina, thank you for that article and this is exactly the theory Harriet was talking about. What this analyst is saying is true, but it’s not the whole story.
A commodity in the ground has been priced and paid for by the retailer, agreed? Okay, and can we agree that the retailer and wholesaler are often the under same ownership? The big five own a whole lot of stations across America. I mention this part because it diffuses the drop in profit as the analyst has alleged. Its a numbers game when you control it all. But to be fair, and I do want to be fair… that’s what this issue is all about…fairness to the consumer, so when they are NOT one in the same then the retailer might be making less profit as the analyst has noted. However, what we have to keep in mind is in most cases the profit is whatever the parent corporation establishes it to be, when they are in control of extraction, refining and retailing and they act in concert with others like them to form a virtual monopoly.
To say the price of gasoline today is determined by what the future cost shall be is a wonderful gimmick that all businesses wish they could do on all products, not just the oil companies. But for the most part they can’t and you have to ask yourself why not?
It’s because of the market forces that we call c-o-m-p-e-t-i-tion. The major oil companies and OPEC are hardly restrained by such nastiness because they operate in concert…and thus they can control (to a large extent) what that FUTURE cost of gasoline will be and instantly charge us for it at the pump. They don’t need a crystal ball to see the future, they create the future! I have no doubt that the analyst was right about making more profit as the price of oil declines and this was part of my gripe. This would explain why wholesalers and retail stations are so reluctant to drop the price as fast as they raised the price.
If you can tie the millions of gallons of gasoline already in the ground to the floating spot price you can capture an extra profit when oil spikes and when oil drops you can delay the pump price drop and capture that difference as well. A win-win, but it plays heck on the consumers and as a national security commodity it leaves us weakened. In an already weak economy high pump prices can be a real threat to our security. Every 10 cents increased in gasoline prices amounts to about $40M the consumer will not be spending for other items.
As the price of gasoline at the pump goes up they are pre-adjusting the price for the next batch and that next batch will have a more conventional profit margin, but the gasoline in the ground developed at the old lower price for crude gives that extra or bonus profit – there can be no other legitimate explanation.
NOTE: When it comes to crude oil there is the spot price and there is the commodity price. The spot price is any transaction where delivery either takes place immediately or with a minimum lag time between the trade date and delivery date due to technical constraints. On the other hand commodity markets require the existence of agreed standards and a future’s contract. So the future price of oil can extend out 6 months. This price, say April Brent crude, then has an established or agreed price between the oil well owner and the wholesale refiner. Speculators create a lot of volatility here because they are buying up supplies they don’t want and hoping to sell them before the price drops and thus they grab a profit as middlemen, but they serve no other real purpose…they’re just speculators.
FUN FACT: A barrel of oil costs around $2.75 per barrel for exploration cost, and it is produced for about $5.50 development cost. There are about 45 gallons of gasoline in a barrel of crude and the refining results in bi-products such as diesel fuel and chemicals for plastics, paint, etc. The current price of a barrel of crude is around $98. If you are an oil-well owner and a refiner, do the math that’s a pretty nice profit! And if you also own the gas stations like Exxon, BP, Chevron, et al, that’s a really good deal.
Question: Do they really need to spike prices at the pump to capture a few more cents off us consumers? You betcha. They can and they do and they will continue this practice as long as they work like a monopoly, defeating the norms of supply and demand.
PS From a report in 1997: Not all oil is equally cheap to find
and produce. Saudi Arabia produces oil at an incremental cost of $0.40 per
barrel! Many wells in the USA, the North Sea, and other parts of the world
become uneconomical if the oil price falls below $12 to $13 per barrel, so
some companies and governments make money at low oil prices, some don’t. ($12 a barrel??? lol Those days are long gone)
Juanita, if we really could reduce our consumption by one full days buying that would work. Unfortunately so far we just make it up the following day – so at the end of the month it all works out the same. But, to cut 1 days profit out of the month would be significant if we would all cut back somehow.
Jack, I’m not saying there aren’t jerks runing gas stations or that what happened to Toby was a smart way to handle the rising cost. (I imagine those types don’t stay in business long…they earn their reward)
You’re thinking like an investor rather than a retailer.
“and can we agree that the retailer and wholesaler are often the under same ownership?”
Not necessarily. I’ve never owned a gas station but as far as I can tell the big corporations, Chevron, Exxon, etc. franchise those stations. That means the store owner has paid for the priviledge of using the brand…that also means he is still a customer for the product he sells. I don’t know what the cost is for a particular franchise but I do know it can run between 30 and 50 thousand dollars just to acquire the franchise who are idependent owners.
Station owners meet the customer face to face and I can tell you from experience that raising a customers price (in this case for gas) is a lot more confrontational for an owner who wants to attract customers than is dropping the price for the product. They do what they have to do to cover the cost of running their business.
I know I haven’t a prayer of changing anyones mind about this. It has become a mantra for the masses that businesses are out for blood, that they’re greedy and self serving. Everyone resents raised prices on products they buy and are convinced that businessmen are out to screw the customer. They feel that way, that is, until they own a business and are faced with meeting the challenges of business day after day. Rising wholesale prices are only one challenge and only one assault on the bottom line. With another station on every other corner for the customer to choose from it would be a very poor idea to gouge the customer on a regular basis.
LOL it sure as hell was not my idea! If I had any say in how that station does business it would not happen like that. I wont tell you the name but it is very near PV high. Please feel free to buy your gas someplace else.
A few more thoughts to consider when evaluating our station owner neighbors:
None of us notice or bothere to consider the plight of the gas station owner as sales plummet. This go around the trend downward began even before the recession. As of March 2010 from David Baker at SF Chronicle:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/03/31/BU8F1CNF86.DTL
How do you suppose the station owners paid their bills during this time? Do you think that, like the rest of us, they have had to be creative about paying their bills?
None of us gives much thought to the consequences of the (many) green laws to these retailers. Higher costs and fees and the threat of fewer customers looms large in the minds of these businessmen due to environmental concerns both real and imagined.
Most gas station owners cant survive without a convenience store and/or car wash attached to the business these days. Are they gouging? I dont know but I’d say it depends on how you interpret the rise in prices at the pump. Are they really gouging the customer or just doing what must be done to survive in a roller coaster businbess with an uncertain destination?
Tina, I understand exactly what you are saying and this is a pretty complex issue with more than one answer to fit, it all depends on the example we’re using.
I can’t speak for the masses, but please don’t misunderstand me – I don’t any have an issue with gas stations. My only qualm is the way this pump price gets jerked up like a rocket or when they resist the price coming down as oil prices subside and the worst part…they all do it in concert. They may not be a true monopoly by the strict definition, but they are truly conspiring to fix prices going up and coming down. It’s like all these stations are on the same hotline telling them the hourly price. So again, I’m not mad at anyone for trying to make a buck. I say, more power to them, but when we’re dealing with an industry that is an integral part of our nation’s security I think due diligence is warranted. We should also be very aware of any hint of monopolistic practices that defeat competitive pricing. Now that is where I am very concerned and I don’t like what I see them doing to pump prices.
We also should light a fire under Obama’s rear end and start the drilling and at the same time open the gate for low cost ethanol so we can be energy independent.
“We also should light a fire under Obama’s rear end…”
Yes indeedy! I’m all for that!
Possible Blog Entry:
Did anyone actually watch the Oscars?
I think it’s time for a DRILL BABY DRILL rally. America has its own oil deposits that we can and should give our own people access too. Superpowers that deny themselves their own resources don’t last long.
Pie, I didn’t watch the Oscars,but then I rarely do. I heard the host James Franco looked stoned throughout the performance. The news guys said he looked bored, sleepy eyed and was gluml and monotone. This contributed to this years Oscars being a flop and for some reason I find that mildly amusing, Kinda wished I had watched it now.
Steve, I completely agree. The United States has a vast amount of oil in the ground and we need the jobs too! For instance, China is drilling off the coast of Cuba between Florida into huge oil rich field and they are tapping oil that reaches into our territorial waters. What are we letting the Chinese recover our oil? Every day that we don’t drill and recover that oil its going to China.
The gulf oil is way under utilized, same for Alaska and lets not over look the shale fields where our latest oil extraction research could provide a breakthrough in accessing a vast amount of oil. The California coast is another area that could be explored and it has many promising sites in addition to those wells already there. And lets not over look developing alternative clean burning fuels from natural gas to ethanol, using the best technology and the best products and not just let one ag sector (corn) get all the contracts.
You add it all up and we have many thousands of oil jobs just waiting to be filled. We could eliminate a good portion of our dependence on foreign oil in the next 5-7 years IF we got busy and started opening up these areas as they should be opened up!
There really is no excuse for blocking drilling in the Gulf. Have you guys read about the new containment equipment that has been developed?
http://www.heraldstandard.com/news/article_a5b5a047-ce35-5272-99ac-61fa74a15098.html
NEW YORK (AP) – A group of oil companies led by Exxon said Thursday it has built a system that can stop an undersea oil spill within weeks, a critical step towards resuming drilling in the deepest parts of the Gulf of Mexico.
The Marine Well Containment Co. announced Thursday that it has cobbled together enough equipment and support vessels to contain a spill similar to BP’s massive gusher, which took 85 days to plug. Some of the equipment was used by BP in its containment efforts.
Regulators have demanded that oil companies demonstrate the capability to contain the blowout of an underwater well before granting permits to drill in Gulf waters deeper than 500 feet.
Exxon said this system, which is available immediately, meets that demand and should have no trouble gaining government approval. Its engineers have consulted with regulators the during the system’s development.
“They’ve been looking at the system all along,” said Clay Vaughn, an Exxon Mobil Corp. vice president who is supervising the response network. In an interview with The Associated Press, Vaughn said bureau officials observed tests of the equipment on Wednesday.
Shell Offshore Inc., a member of the Exxon group, is first in line for a new permit in the deepwater. The government has until the end of the month to decide whether to approve Shell’s Garden Banks project, about 137 miles from the Louisiana coast.
It’s the “end of the month”…what have we heard about either the new system for containment or approval for drilling?
(chirp)
I was wondering about the gas already paid for in the tanks, In order for the owner of the station to have the money to pay the new shipment wouldn’t he have to raise the prices to meet his needed amount?
f50 adizero micoach, you are correct about station owners needing to raise prices to meet rising prices and I think the delay when prices come down is at least two to three weeks.
Thank you for the question. You might enjoy a visit to gas buddy: http://gasbuddy.com/