How bad do gas/fuel prices have to get?

[scottnj1966]

I think you need to change the m to a b for the oil company numbers. It's billions. Unless you are just talking about a small division of those companies.

Oh, come on. When demand increases, price increases. Lower mileage cars increase demand. Oil is a fungible resource and there are many providers that, except for bottlenecks in refining capacity and so on, the oil market responds very accurately to changes in supply and demand. Of course, oil companies could theoretically increase prices by lowering demand, but since they are selling more oil than ever, that's not the case.

As for "huge profits"...well, let's see. Exxon-Mobil in 2006 reported about $40 million earnings on $365 million in revenues. That's about an 11% profit margin. Royal Dutch Shell earned $26 million on $318 million revenue, only about 8% profit margin.

These margins haven't changed a whole lot in the last few years, which means the dramatic increases in the raw amount of earnings is caused primarily by selling more oil...which is to say, increased demand.

Now let's look at the Walt Disney Company,,,$6.5 million earned on $34 million of revenue...a whopping 19% profit margin.

Or let's look at this another way. If the oil companies are making about a 10% margin on gas, then for a $3 gallon of gas, there's about 30 cents of profit in there. Of course it would be nice if there was a non-profit oil company but it would only drop the price to about $2.70, which is still a lot higher than it was a few years ago. And consider that the average total of federal and state gasoline taxes is about 46 cents a gallon, more than the oil company profits.

Summing up, finding a way to use less gas will of course mean you will pay less for gas total, and it's the only way to lower the unit price, as well. I don't enjoy paying $3 a gallon any more than anyone else, but getting angry at oil companies for charging us more for a finite resource that we keep demanding more of gets us nowhere.

 

[The Mom]

Oh, come on. When demand increases, price increases. Lower mileage cars increase demand. Oil is a fungible resource and there are many providers that, except for bottlenecks in refining capacity and so on, the oil market responds very accurately to changes in supply and demand. Of course, oil companies could theoretically increase prices by lowering demand, but since they are selling more oil than ever, that's not the case.

As for "huge profits"...well, let's see. Exxon-Mobil in 2006 reported about $40 million earnings on $365 million in revenues. That's about an 11% profit margin. Royal Dutch Shell earned $26 million on $318 million revenue, only about 8% profit margin.

These margins haven't changed a whole lot in the last few years, which means the dramatic increases in the raw amount of earnings is caused primarily by selling more oil...which is to say, increased demand.

Now let's look at the Walt Disney Company,,,$6.5 million earned on $34 million of revenue...a whopping 19% profit margin.

Or let's look at this another way. If the oil companies are making about a 10% margin on gas, then for a $3 gallon of gas, there's about 30 cents of profit in there. Of course it would be nice if there was a non-profit oil company but it would only drop the price to about $2.70, which is still a lot higher than it was a few years ago. And consider that the average total of federal and state gasoline taxes is about 46 cents a gallon, more than the oil company profits.

Summing up, finding a way to use less gas will of course mean you will pay less for gas total, and it's the only way to lower the unit price, as well. I don't enjoy paying $3 a gallon any more than anyone else, but getting angry at oil companies for charging us more for a finite resource that we keep demanding more of gets us nowhere.

Whoa! I'm impressed that someone else understands profit margins! You gave one of the best concise explanations I've seen (better than my economics teacher, for sure) Thank you so much...I may print a thousand copies to just hand to people, rather than trying to explain it myself.

The one thing you forgot to add is the fact that "big oil" gets just as much, if not more, of their profits from other petroleum based products, such as plastics. I haven't noticed a spike in the cost of baggies lately. :shrug:

The last factor is that gasoline is a unique consumer product, in that;

1. The price is posted OUTSIDE the "store" so you can comparison shop, and also can see the changes in price immediately.
2. It is a product that the consumer buys a large quantity of on a weekly (or more) basis so the total hit becomes apparant. If you had to buy 20 gallons of milk at a time you would be aware of the increase in milk prices.
3. It's one of the few products with imbedded taxes. If you had to purchase the product, and THEN had the taxes added, you would know how much the government adds to your cost.

 

[The Mom]

I think you need to change the m to a b for the oil company numbers. It's billions. Unless you are just talking about a small division of those companies.

It still wouldn't change the profit margin.

 

[scpergj]

Oh, come on. When demand increases, price increases. Lower mileage cars increase demand. Oil is a fungible resource and there are many providers that, except for bottlenecks in refining capacity and so on, the oil market responds very accurately to changes in supply and demand. Of course, oil companies could theoretically increase prices by lowering demand, but since they are selling more oil than ever, that's not the case.

As for "huge profits"...well, let's see. Exxon-Mobil in 2006 reported about $40 million earnings on $365 million in revenues. That's about an 11% profit margin. Royal Dutch Shell earned $26 million on $318 million revenue, only about 8% profit margin.

These margins haven't changed a whole lot in the last few years, which means the dramatic increases in the raw amount of earnings is caused primarily by selling more oil...which is to say, increased demand.

Now let's look at the Walt Disney Company,,,$6.5 million earned on $34 million of revenue...a whopping 19% profit margin.

Or let's look at this another way. If the oil companies are making about a 10% margin on gas, then for a $3 gallon of gas, there's about 30 cents of profit in there. Of course it would be nice if there was a non-profit oil company but it would only drop the price to about $2.70, which is still a lot higher than it was a few years ago. And consider that the average total of federal and state gasoline taxes is about 46 cents a gallon, more than the oil company profits.

Summing up, finding a way to use less gas will of course mean you will pay less for gas total, and it's the only way to lower the unit price, as well. I don't enjoy paying $3 a gallon any more than anyone else, but getting angry at oil companies for charging us more for a finite resource that we keep demanding more of gets us nowhere.

Wow...another person that actually understands business and economics!

The above quote is correct. The oil company profits are fairly low percentages. Part of the problem is the cost of oil, although that is not quite as high as it was. Another part of the problem is the cost of refining oil into gasoline. There has not been a new refinery built in this country in over thirty years...and demand has risen greatly since then. Add to that the fact that there are many, many blends of gas required by different state and local governments for their region, and every switch between those costs money in downtime (when the refinery is not producing product, they still have to pay their employees to make the changes), prices are going to rise.

Kevin

 

[KaliSplash]

Wait, you don't understand. We want all the oil company employees to make $12,000 per year, live at the YMCA and eat the soup kitchen so we can pay $1.25 for gasoline. Or 30 cents a gallon as it was when I was a beginning driver.

What? we'd have to impress them into service at the oil company to get them to work like that? You mean like nationalize the oil companies? No wait, that won't work either, will it?

Let's understand the law of supply and demand here. The price is what people are willing to pay. And if we want to go to WDW, we have to pay the price.

 

[marni1971]

Honestly, you don`t know how good you have it. It`s around $9 a UK gallon over here (94 pence -ish- per litre)

 

[tony&mistyw]

Gas prices played a large part in my deciding to fly for our trip in october.
I had figured if gas had gotten to 4 or 5 dollars a gallon it would cost me almost 500-600 dollars to drive to wdw and back. I started looking for airfare and found a heck-of-a deal from nasville to orlando roundtrip for two people non-stop both ways for just a little under $300.00, that was a simple decision "honey were flying to florida". It should be an interesting trip I have never flown before. Well there is a first time for everything.

 

[Slowjack]

Whoa! I'm impressed that someone else understands profit margins! You gave one of the best concise explanations I've seen (better than my economics teacher, for sure) Thank you so much...I may print a thousand copies to just hand to people, rather than trying to explain it myself.

Thanks! I've never had an economics class--just something I've developed an interest in over the past few years.

1. The price is posted OUTSIDE the "store" so you can comparison shop, and also can see the changes in price immediately.

Yes, that's one of the reasons why gasoline is such an efficient market. What's odd to me is that brand loyalty and habit can still overcome price sometimes. Right by my house are two gas stations, next to each other on the same side of the road. The Shell station, over the past year, is consistently 3 or 4 cents more per gallon than the Chevron, and yet it still gets business.

3. It's one of the few products with imbedded taxes. If you had to purchase the product, and THEN had the taxes added, you would know how much the government adds to your cost.

Right--this is one of the reasons I oppose the introduction of a European-styled VAT. Not that I am necessarily stating that the gas tax should be lower, but I think that people should always be aware of what they are paying in taxes.

 

[elabron]

Oh, come on. When demand increases, price increases. Lower mileage cars increase demand. Oil is a fungible resource and there are many providers that, except for bottlenecks in refining capacity and so on, the oil market responds very accurately to changes in supply and demand. Of course, oil companies could theoretically increase prices by lowering demand, but since they are selling more oil than ever, that's not the case.

As for "huge profits"...well, let's see. Exxon-Mobil in 2006 reported about $40 million earnings on $365 million in revenues. That's about an 11% profit margin. Royal Dutch Shell earned $26 million on $318 million revenue, only about 8% profit margin.

These margins haven't changed a whole lot in the last few years, which means the dramatic increases in the raw amount of earnings is caused primarily by selling more oil...which is to say, increased demand.

Now let's look at the Walt Disney Company,,,$6.5 million earned on $34 million of revenue...a whopping 19% profit margin.

Or let's look at this another way. If the oil companies are making about a 10% margin on gas, then for a $3 gallon of gas, there's about 30 cents of profit in there. Of course it would be nice if there was a non-profit oil company but it would only drop the price to about $2.70, which is still a lot higher than it was a few years ago. And consider that the average total of federal and state gasoline taxes is about 46 cents a gallon, more than the oil company profits.

Summing up, finding a way to use less gas will of course mean you will pay less for gas total, and it's the only way to lower the unit price, as well. I don't enjoy paying $3 a gallon any more than anyone else, but getting angry at oil companies for charging us more for a finite resource that we keep demanding more of gets us nowhere.

Excellent post.........despite the record prices at the pump, consumption is at an all-time high. And many states, such as Wisconsin, regulate what station owners can charge....meaning that there is a minimum!

Increasing domestic production from ANWAR and the Gulf, loosening restrictions on building new refineries, and conservation are the only ways to solve the problem. The Middle East has us by the throat, and China's newfound love affair with automobiles is driving demand higher and supply lower.

 

[Slowjack]

I think you need to change the m to a b for the oil company numbers. It's billions. Unless you are just talking about a small division of those companies.

Ah, yes. My bad. :hammer:But as the Mom says, the ratios don't change. Edit: and to be clear, the Disney numbers should be billions also.

 

[Dwarful]

I don't know if the price of gas alone would really influence a family to opt to go to the local Six Flags for their vacation instead of going to WDW. However, in our area we have been hit hard by several skyrocket price increases to our utilities, with most homes / businesses in our area seeing a 200% increase in their utility bill, add on gas at $3.25 a gallon with most people in our area driving 1 hr each way to work those costs begin to eat away at the family budget.

We have been working all year to get our girl scout troop to Disney this August, some families are flying others are driving. Depending on the size of the family driving may be cheaper even with higher fuel costs.


I agree, at $4.50 I would begin walking a lot more. My husband couldn't walk to work, as he works 65 miles away. I already walk the girls to school. I could certainly walk to the grocery store daily but not for a major shopping trip.

 

[bjlc57]

the price is stopping us RIGHT NOW...

Any time gas is over $2 it affects us. but once it reached over $2.50 per gallon we stopped our ability to go to WDW. Our money has been tight the past couple of years and when it would cost us a family of four close to $700 just for gas, its too much, now start adding tickets for 4 days for 4 people. a room, FOOD, and any spending money, and you are looking at close to $4000 because of the 4 days of travel to and from WDW. Gas is killing us all right now..

maybe the ultra elite is not affected by it, but for people making less then $50,000 per year, it certainly does.

 

[bjlc57]

not to argue , but its one thing ,when you live in Florida, to tell someone, "how much extra it costs" as opposed to living in Wisconsin or Illinois or New York State ( the primary areas that WDW advertises during the winter and spring months. ) and you have to travel over 3000 miles round trip. and IF YOU and your WIFE are PAYING FOR IT ALL. meaning that you are not splitting the costs.that it comes from YOUR HOUSE HOLD BUDGET.

I would not be so flippant with other peoples money, that it cost one "glass of wine".. We don't buy a glass of wine for $11 EVER. its never been in our budget.

Its very easy to price out the "lower class" to go to WDW, especially from the areas that I mentioned. ( well they shouldn't be there anyway. Right? ) .

No its easy to justify spending other peoples money.. But its not correct, nor do you or I know everyone's bank account. Or their justification to not go into debt just for a vacation. or to raise their debt to go on vacation.

so please don't justify or simplify things as just a GLASS OF WINE. for some, its much more then that and maybe that glass of wine IS THE DIFFERENCE.

 

[bjlc57]

as for defending the oil companies. Tell me when the Oil companies, who have the same type of monopoly or an oligopoly as the other utilities, were not profitable? Even when Oil had dropped to $11 per barrel under Clinton, when were the OIL companies not profitable?

But because the government and especially the current adminstration,all benefit from the price of oil, why should they be pushing for the price to moderate.

isn't this the SAME PERSON who said Prior to becoming President, that the price of OIL WAS TOO LOW? Isn't this the same person who was an oil LOBBYIST?


Isn't this the same person, who when earlier THIS YEAR,when the price of crude was $50 per barrel, increased the U.S. SURPLUS to take OIL OFF THE MARKET to raise the price back up.

Yes you go ahead and defend the OIL COMPANIES. How much profit are YOU MAKING FROM THE SAME COMPANIES in stocks and other annuities? Meaning, just how objective are YOU TRULY BEING? because I would bet that you are benefiting from the high price right along with the OIL COMPANIES.

 

[The Mom]

not to argue , but its one thing ,when you live in Florida, to tell someone, "how much extra it costs" as opposed to living in Wisconsin or Illinois or New York State ( the primary areas that WDW advertises during the winter and spring months. ) and you have to travel over 3000 miles round trip. and IF YOU and your WIFE are PAYING FOR IT ALL. meaning that you are not splitting the costs.that it comes from YOUR HOUSE HOLD BUDGET.

I would not be so flippant with other peoples money, that it cost one "glass of wine".. We don't buy a glass of wine for $11 EVER. its never been in our budget.

Its very easy to price out the "lower class" to go to WDW, especially from the areas that I mentioned. ( well they shouldn't be there anyway. Right? ) .

No its easy to justify spending other peoples money.. But its not correct, nor do you or I know everyone's bank account. Or their justification to not go into debt just for a vacation. or to raise their debt to go on vacation.

so please don't justify or simplify things as just a GLASS OF WINE. for some, its much more then that and maybe that glass of wine IS THE DIFFERENCE.

I didn't mean to be flippant. I was just remarking that transportation cost is part of a bigger WDW vacation package, and if an $11/day increase per person (if there are only two of you) is your breaking point for going, then perhaps a vacation to WDW isn't in your budget at all, regardless of gasoline prices.

I grew up in poverty that most of you could not imagine, no where NEAR FL, so ANY overnight trip ANYWHERE was not in the budget. The cost of just one component of the trip would not have made any difference. My parents & I made our first trip to WDW when I was 31 years old, and I was LIVING in FL. Otherwise, they and I wouldn't have made it for many more years.

WDW is EXPENSIVE, regardless of how you budget, and there are always going to be unexpected expenses. If you cannot factor in a small cushion, then yes, maybe it is too expensive for you. I've been to Atlantis, and would love to go back...but it's too darn expensive! I know I could pinch pennies and probably make it, but any unexpected increase would be a strain, so I won't do it. There are many things in life that I can't purchase because I can't afford them. That doesn't make me unworthy of them, or make the people who can afford them somehow better than I.

 

[The Mom]

as for defending the oil companies. Tell me when the Oil companies, who have the same type of monopoly or an oligopoly as the other utilities, were not profitable? Even when Oil had dropped to $11 per barrel under Clinton, when were the OIL companies not profitable?

But because the government and especially the current adminstration,all benefit from the price of oil, why should they be pushing for the price to moderate.

isn't this the SAME PERSON who said Prior to becoming President, that the price of OIL WAS TOO LOW? Isn't this the same person who was an oil LOBBYIST?


Isn't this the same person, who when earlier THIS YEAR,when the price of crude was $50 per barrel, increased the U.S. SURPLUS to take OIL OFF THE MARKET to raise the price back up.

Yes you go ahead and defend the OIL COMPANIES. How much profit are YOU MAKING FROM THE SAME COMPANIES in stocks and other annuities? Meaning, just how objective are YOU TRULY BEING? because I would bet that you are benefiting from the high price right along with the OIL COMPANIES.

I'm not going to address the political issue, as it is AGAINST forum rules, but I can only assume that my IRA and mutual fund have investments in oil companies, as do most pension plans, 401ks, etc. So if you have any of those (and you would be foolish not to have at least an IRA) you also have a stake in the profitability of ALL companies, including "big oil."

I certainly want ALL US companies to be profitable; if they stop being profitable, we will ALL suffer. That's pretty basic. What we are saying is that even though the numbers are higher, the percentage of money STAYING in the companies pocket is NOT increasing. If it starts decreasing, to "lower" the numbers, the company will eventually go out of business.

Not understanding profit margin is the leading cause of new business failure. The owners just look at their net profits, (gross profit - expenses) and wonder why their business starts going down the tubes.

And as I already mentioned, oil companies get as much, if not more, of their profits from products other than gasoline, and in other countries.

And you are absolutely correct that the government(regardless of who is in the White House) benefits from increased profits, as they get increased tax revenue. Just as they benefit from increased profits for ANY company. Or increased income from any person.

 

[Hakunamatata]

Increasing domestic production from ANWAR and the Gulf, loosening restrictions on building new refineries, and conservation are the only ways to solve the problem. The Middle East has us by the throat, and China's newfound love affair with automobiles is driving demand higher and supply lower.

First, I have not taken the time to read this whole thread.

Second, the above statement really sums it up. We are way too dependent on others for the major componant that drives our countries economy. We lose our ability to be mobile, we lose alot.

Third, seasonal fluxuations in gas prices are not always directly related to the price of oil. The same plants that refine oil into gas, refine oil in to heating oil, jet fuel, etc. In addition, these same plants refine different variations of fuel for different areas of the country. This requires plants to retool between productions, causing the supply of available fuel in the market to be more valuable.

Fourth, oil companies are privately owned businesses, in business to make money for their stockholders. You think the price of gas is high? What if our government took over running of oil refineries. Think the price would go down? Ha!

 

[scpergj]

Any time gas is over $2 it affects us. but once it reached over $2.50 per gallon we stopped our ability to go to WDW. Our money has been tight the past couple of years and when it would cost us a family of four close to $700 just for gas, its too much, now start adding tickets for 4 days for 4 people. a room, FOOD, and any spending money, and you are looking at close to $4000 because of the 4 days of travel to and from WDW. Gas is killing us all right now..

maybe the ultra elite is not affected by it, but for people making less then $50,000 per year, it certainly does.

Ok...just some really quick math.

First, let's assume that LaCrosse is 1500 miles from WDW. That would make a round trip 3000 miles. IF you had a car that got just 20 miles to the gallon, that would mean you would burn 150 gallons of gas on the trip. If the price was $2.00 per gallon, then your fuel cost would be $300 for the trip. If the price was $3.00 per gallon, then your fuel cost would be $450 dollars. The difference is $150 dollars. Again, assuming that your trip would be 3000 miles, if your gasoline costs are $700, then you are only getting 12.85 miles per gallon...which makes you part of the problem, not part of the solution (I drive a Honda Civic, as our family car, that gets about 38 MPG on the highway and I'm averaging 33 MPG in daily driving, real MPG not sticker MPG)

Now, if $150 is enough to keep you from being able to go to WDW (and it has been for my family before, as in we couldn't afford the room, food, and gas, so we didn't take that trip), then maybe you should be saving your money and not going this year. Make your trip every other year, or every third year, whatever. But if $150 is enough to keep you from a trip, then you can't afford to go. We live here in Florida, but couldn't afford to go for several years. But we did what we could to better our lives and now can afford to go. Last year we had AP's, but couldn't justify the expense this year, so didn't renew them. We will get them again this October...so, in our case, we go for a year, take a year off, go for another year, then take another off. It's how we can afford it...you do what you can with what you have. This will be our third go around at this...go, don't go, go, don't go, then go.

 

[scorp111]

Ok...just some really quick math.

First, let's assume that LaCrosse is 1500 miles from WDW. That would make a round trip 3000 miles. IF you had a car that got just 20 miles to the gallon, that would mean you would burn 150 gallons of gas on the trip. If the price was $2.00 per gallon, then your fuel cost would be $300 for the trip. If the price was $3.00 per gallon, then your fuel cost would be $450 dollars. The difference is $150 dollars. Again, assuming that your trip would be 3000 miles, if your gasoline costs are $700, then you are only getting 12.85 miles per gallon...which makes you part of the problem, not part of the solution (I drive a Honda Civic, as our family car, that gets about 38 MPG on the highway and I'm averaging 33 MPG in daily driving, real MPG not sticker MPG)

Now, if $150 is enough to keep you from being able to go to WDW (and it has been for my family before, as in we couldn't afford the room, food, and gas, so we didn't take that trip), then maybe you should be saving your money and not going this year. Make your trip every other year, or every third year, whatever. But if $150 is enough to keep you from a trip, then you can't afford to go. We live here in Florida, but couldn't afford to go for several years. But we did what we could to better our lives and now can afford to go. Last year we had AP's, but couldn't justify the expense this year, so didn't renew them. We will get them again this October...so, in our case, we go for a year, take a year off, go for another year, then take another off. It's how we can afford it...you do what you can with what you have. This will be our third go around at this...go, don't go, go, don't go, then go.

The important thing to remember here, is that higher fuel prices are not just a burden when driving to WDW. They are a higher burden for middle income families every day of the year. Trips to school, work, grocery stores, etc ALL cost more. So it isn't the $150 extra for a trip to WDW but rather the cumalative cost of fuel throughout the year which can cause a once affordable trip to be out of reach.

My family, we find ways to cut costs in other areas as needed.

 

[LPK]

Yikes, never come to England. : You'd be paying about $8 here. :