Royal Dutch Shell Plc  .com Rotating Header Image

Denver Post: Big-oil profits barrel ahead

By Will Shanley
Denver Post Staff Writer

Big oil is making big money – again.

With the average price of gas popping past the psychologically important $3-per-gallon mark last week, oil producers and refiners have been reaping big rewards.

Gross profit margins on gasoline at the nation’s refineries reached $31.22 per barrel Thursday, the second-widest recorded margin in U.S. history, according to data provided by the New York Mercantile Exchange. The margins are up 57 percent from the start of April and are more than double the same time last year.

Meanwhile, retail gas stations and gasoline distributors see their margins trimmed when the price of gas soars, said Jack Hunter, an energy analyst with FC Stone in Kansas City, Mo.

Gasoline retailers typically make about 10 cents on each gallon of gas sold, with independent retailers making slightly more, according to Michael Fox, executive director of the Gasoline & Automotive Service Dealers of America, a trade group.

Those margins shrink when gas prices rise. But when wholesale gas prices drop, retailers tend to lower prices at the pump more slowly, allowing them to make up for the slender profits during times when margins are pinched.

“The oil companies are the ones making a killing,” Hunter said. “To be in a business where you make $31 per unit, that is pretty good.”

Gross refining margins are calculated by subtracting refiners’ crude-oil purchase price from their wholesale gasoline selling price. The refiners’ net profits are lower than gross margins because of additional costs such as operating expenses, payroll, marketing, distribution and taxes.

The widest gross margin, recorded on Sept. 1, 2005, in the wake of Hurricane Katrina, was $31.71 per barrel, according to the NYMEX data.

The nation’s top five oil companies – Exxon Mobil, BP, Royal Dutch Shell, Chevron and ConocoPhillips – own more than 40 percent of U.S. refining.

Suncor Energy USA, operator of Colorado’s only refinery, said the industry’s bulging margins are a function of supply and demand. A fire last month at a Texas oil refinery caused spot shortages of gasoline, pushing gas prices higher throughout the U.S.

“It put a strain on the supply network,” Steve Douglas, a Suncor spokesman, said of the fire and other recent supply disruptions. “It’s a question of gasoline shortages driving prices higher and higher.”

Even so, Hunter pointed out that the price of crude oil – which typically accounts for about 53 percent of the price of gas – has remained relatively unchanged this year. Since January, crude oil prices have increased by about 1.4 percent, closing Friday at $61.93 per barrel.

Meanwhile, gas futures contracts have increased by 37 percent, moving from $1.61 per gallon at the beginning of 2007 to $2.21 per gallon on Friday.

“The cost input is the same, but the oil companies are getting more for the end product,” Hunter said.

The reason: The capacity at the nation’s refineries has failed to keep pace with consumer demand, said Bryant Gimlin, an executive with Gray Oil Co., a wholesale distributor in Fort Lupton.

Gimlin, citing federal data, said the nation’s refineries are running at 88.2 percent of capacity. He said U.S. refineries typically run at about 95 percent of capacity.

“The refiners are being rewarded for producing less,” Gimlin said.

Suncor’s Douglas disputed that assertion.

“When refiners see wide margins, we will run full out to take advantage of that,” said Douglas, noting that gross margins can turn negative during winter months.

Regardless, an apparent increase in crude oil inventory could portend a decline in margins and prices at the pump, according to a report issued last week by Energy Directions Inc., based in Phoenix.

The report, written by analyst Michael D. Smolinski, pointed to a recent increase in crude oil inventories as the reason.

“The multi-year rise in oil prices has many people used to the idea that buying oil in the future and holding it to sell at a gain works,” the report reads. “We conclude that bearish comparisons are next and with high energy expectations – lifted even higher by recent events – that the conditions are in place for a meaningful decline.”

Staff writer Will Shanley can be reached at 303-954-1260 or [email protected].

This website and sisters,,,, and, are owned by John Donovan. There is also a Wikipedia segment.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.