Monday, March 17, 2008

Who profits from $3 gas and who doesn't


With prices at the pump continuing to escalate, oil at record highs and Big Oil profits at the highest point in human history, folks are naturally wondering where all the money is going.

CNN.com has a feature story on the topic. Here are some excerpts...

So exactly who is gePost Optionstting rich?

Oil traders: While often blamed for pushing up prices, traders don't necessarily benefit from the high price of crude or gasoline; they profit from how much the price changes. Traders can get rich - as long as they bet correctly on whether prices will rise or fall.

For example, an investment bank that makes a bet that the price of oil will rise makes money when oil prices go from $95 to $100 a barrel - or $100 to $95 if it bet the price will fall - not on the difference between production cost and trading price.

"If you wanna keep your job, you gotta be more right than wrong," said John Kilduff, an energy analyst at the trading firm MF Global in New York, explaining how traders make their money.

Gas stations: A surprisingly small amount goes to the guy who runs the station.

Most service stations are independently owned and operated and take in between 7 and 10 cents for every gallon they sell, according to the U.S. Energy Information Administration.

That 7 to 10 cents going to the gas station isn't even profit. Out of that, station owners still have to pay leases, workers, and other expenses - leaving them with a profit of just a few cents. For the service stations, most profit comes from selling coffee, cigarettes, food and other amenities.

These calculations are based off of EIA's most recent numbers, when gas was $3.04 a gallon. Gasoline hit another record nationwide average of $3.27 a gallon Thursday… [Read More]