Sunday talk show

On one of the Sunday talk shows today a politician referred to the way the big oil companies are gouging us at the pump and his remark went unchallenged by the host. I have gone over this before but it bears repeating. In 1998 oil was $10 per barrel and gas was one dollar per gallon. A barrel of oil contains 42 gallons of which about 20 gallons is gasoline. If you purchased a barrel of oil for $10 and sold the gas for one dollar per gallon you would make ten bucks. Fast forward to 2008 when oil was $140 per barrel and gas was selling for $4 per gallon. Now you buy a barrel of oil for $140 and sell the gas for $80 and you lose $60. Would you rather make $10 a barrel or lose $80? The oil companies do not make money by selling gas. They make money by taking oil out of the ground at little cost and selling it for $140 per barrel. Further more, the oil companies only own 6% of all gas stations and they are trying to sell those. If I hear one more idiot say the oil companies are gouging us at the pump, I will scream. How is the price at the pump determined? It is based on the world market price which is largely dependent on supply and demand. The US is currently exporting gasoline because we have supply over and above our demand. Some suggest that the oil companies dump their excess on the US market to over-supply and lower the price but why would they sell their gas here at a price below the world market as this would just further increase the world price. The other factor that impacts the price of gasoline is refinery capacity which is restricted since no new refineries have been built in many years. We here in the US have improved the efficiency of our refineries to the point where we can exceed our needs but the rest of the world suffers from low refinery output. A typical example is Iran who has more oil than they could ever use but imports gasoline because they have only a few refineries that are old and inefficient.