Why U.S. consumers suspect gas prices are devalued and how much stations actually profit from a gallon of fuel
Oil company executives will be on hot spot Wednesday in a House subcommittee hearing as U.S. consumers across the country say gasoline price has been dwarfed at the pump, where drivers paid record prices last month. per gallon for fuel.
The rise in the cost of gasoline came amid a rise in the prices of CLK22 crude oil,
at most in almost 14 years. But market experts say that while there may be some instances where consumers have been overloaded for fuel, there is a reasonable explanation for the climb.
“The main reason that drove retail gasoline prices to record highs in March was the Russian invasion of Ukraine in the face of a tight global oil market,” said Brian Milne, editor, DTN product manager. “Oil demand quickly recovered from the pandemic blockades, outpacing supply growth, with the invasion of Ukraine and subsequent sanctions on Russian oil exports increasing concern over supply disruptions and shortages.” .
This is of little comfort to US drivers who paid an average of $ 4,353 per gallon for gasoline on March 11, the highest price ever recorded, according to GasBuddy data.
To read: What Biden’s historic decision to release oil reserves means for the market
See also: Rising diesel costs could hit consumers harder than record gasoline prices
On Wednesday, the Democratic-run House Energy and Trade Committee’s Oversight and Investigations Subcommittee expects to have executives from major oil companies, including Chevron Corp. CVX,
ExxonMobil Corp. XOM,
and BP PLC BP,
testify in an audition titled “Gouged at the Gas Station: Big Oil and America’s Pain at the Pump”.
The hearing comes as politicians and consumers point out that many oil companies have made huge profits amid soaring oil prices. BP posted its highest profit since 2012 last year.
In what could give rise to demands in the US and Europe for withdrawals for unexpected or similar profits related to rising energy prices, Exxon said in a statement Monday that its first quarter profits could exceed 9 billion dollars, compared to 8.8 billion dollars in the fourth quarter.
This is partly due to between $ 1.9 billion and $ 2.3 billion in crude oil price changes and up to about $ 400 million in gas price changes, Exxon said in the filing. This would be offset by thinner margins in chemicals, impairments related to the abandonment of Russia after the invasion began, and others.
Exxon is expected to report later this month and the FactSet consensus calls for an adjusted earnings per share of $ 2.17, which would be comparable to an adjusted EPS of 65 cents per share in the quarter a year ago.
Other major energy companies have not yet provided Q1 updates, which are somewhat unusual in the tightly planned world of integrated giants.
People look at the profits of the oil companies and think they are “increasing [gasoline] prices arbitrarily, “but potentially aren’t even looking at the” tremendous “losses for those companies in 2020, said Patrick De Haan, head of oil analysis at GasBuddy.
The idea of a gas price devaluation “is not a fair valuation” of the market, he said. Oil companies, of course, do best when oil prices are higher, but counterfeit claims are more of a “voice of frustration” for rising oil prices.
Fuel prices generally “lag on increases and decreases” in oil prices for two to four days before starting to move in the direction of a major oil price shift, says De Haan, and there is some “truth.” on the ‘rocket prices’ and ‘feather’ “, as prices can” rise “and then fall slowly.
But gas stations are aware that the market has been extremely volatile and the last thing they want to do is cut their price significantly by, say, 10 or 15 cents a gallon, just to drive up wholesale prices. 20 cents, he said.
In 2021, the price of crude oil represented nearly 54% of the average retail price per gallon of gasoline, according to the Energy Information Administration. Hence, it makes sense that the roughly 60% increase in oil prices in the United States since April 1, compared to the same period a year ago, leads to an increase in gasoline prices at the pump. At an average of $ 4,175 for gasoline on April 4, prices are 46% higher than a year ago, GasBuddy data shows.
But that doesn’t translate into large profits from gasoline sales for oil companies. In a recent report, Jeff Lenard, vice president of strategic industry initiatives at the National Association of Convenience Stores, or NACS, said only about 39 percent of the country’s 145,000 outlets carry branded fuel from one of the top five oil companies. and only about 0.1 percent of US gas stations are actually owned by a major oil company.
The markup on a gallon of gas averages 30 cents, and after expenses such as credit card fees, retailers have “net profits of about 10 cents a gallon,” Lenard said.
US drivers consume approximately 9 million barrels of gasoline per day. Multiplying by 365 days in a year and 42 gallons in a barrel to that net retail profit of about 10 cents per gallon adds up to $ 14 billion in estimated annual profits from gasoline sales in the nation, for all 145,000 retailers. of fuel, Lenard said.
“The counterfeit price claims along the gasoline supply chain are false, as they try to scapegoat an industry that is under extraordinary regulatory oversight to distract from the inflationary pressures that harm American consumers,” said DTN’s Milne. .
Claudia Assis in San Francisco contributed to this story.