Pain at the pump
Nowadays, many drivers are doing something that they weren't doing four months ago: checking the signs at gas stations for the price of fuel. And they're checking every day.
Fuel costs were rising steadily over the past year, but the Russian invasion of Ukraine in February created a global energy crisis, sending prices skyrocketing. In June of 2021, the average price of gasoline in the United States was $3.18 a gallon. As of June 24, 2022, the price of unleaded gasoline in Concordia is $4.69 a gallon. That's an increase of almost 50%... in one year.
Why?
Good question. The answer is convoluted and has many layers, and powerful lobbyists in Washington D.C. are trying to make sure that their clients don't shoulder the blame, or public scorn.
Amid all this debate, there's one thing for certain: local gas stations aren't reaping the profits.
On average, most local gas stations don't make a lot of money on gas sales. The vast majority of their profits come from the sale of food and drinks inside the store. According to the website omegawv.com, the average markup – or “margin” - on a gallon of gas for a gas station is about 15 cents. This is gross profit before any expenses. Factoring in average expenses, which include rent, utilities, freight, labor, and credit card fees, a gas station retailer is left with about two cents per gallon in profit for each gallon of gas sold.
A typical gas station may hold as much as 10,000 gallons of gasoline and diesel in its underground tanks. In times of skyrocketing prices, gas station owners must do quick math - it's not what they need to charge for the gas that's already in their tanks, but what they're going to have to pay to refill those tanks.
Peter McNally, an energy analyst with the research firm Third Bridge said that “Retail gasoline (gas station owners) typically has the lowest margins.”
One manager of an area gas station said that he hears a lot of complaints about the price of gasoline. But, lately, even more people are asking him if he knows when the price is going to go up. “I hear that question a lot,” the manager said. “Even when I'm not at work, I get asked that question all the time. And the answer is: we don't know. We get an email from the corporate office when it happens. We confirm the email and price and then adjust our pumps.”
According to nbcnews.com, the companies making the most money when oil prices go up tend to be the ones that do the exploration and extraction, which is called “crude” cost. These are benchmark oil companies such as Exxon, Shell, Chevron, and British Petroleum (BP).
Extracting the oil out of the ground – crude - is just the first step and just one component of the cost of a gallon of gasoline at the pump. A barrel of oil is refined into roughly 42 gallons of gas. When the price of oil is at $100 a barrel, crude accounts for about $2.40 per gallon. The fuel is then transported from the refinery to storage facilities and gas stations, which adds more to the cost.
Next comes the government. The price drivers pay at the pump includes, on average, about 55 cents per gallon in federal and state taxes. Drivers in Kansas pay 24 cents per gallon in state tax, and 18.1 cents per gallon in federal tax. In the United States, Pennsylvania currently has the highest state gas tax at 59 cents a gallon. Alaska has the lowest at eight cents.
So, exactly how much profit is the “big oil” companies making? A USAToday.com report stated that in the first quarter of this year (the first three months of 2022) Shell's adjusted earnings rose to $9.1 billion from $3.2 billion in the same period last year. Their net income rose to $7.3 billion.
BP posted its highest quarterly profit in over a decade: $6.2 billion in the first three months of this year, more than doubling the $2.6 billion it profited from the same period last year.
At the end of April, Exxon Mobil reported $5.48 billion in profits during the first quarter of 2022 – also more than doubling its profits compared with the same period last year.
In a column published by newyorker.com on May 11, 2022, John Cassidy wrote: “...this shortfall raises the question of whether energy companies are deliberately sitting on their hands to keep prices and profits high.”
In the Cassidy article, Senate Majority Leader Chuck Schumer is quoted as saying, “They’re (oil companies) not using the money for domestic energy production. They’re using it for stock buybacks. They’re using it to make their shares go up.”
The latest earnings announcements from the oil sector seem to confirm Schumer’s statement. Exxon said that it intends to triple the purchases of its own stock from investors—a financial tactic corporations use to reduce the number of shares they have outstanding and boost their earnings per share. The company announced it will spend up to $30 billion on buybacks between now and the end of 2024. Chevron said that it will devote $10 billion this year to buybacks, double its previous target.
According to the website accountable.us: in 2021, the 28 top oil and gas CEOs raked in $394 million in compensation from their companies. That averages out to about $14 million in compensation per person.
Exxon CEO Darren Woods received a 50% bump in his total compensation in 2021,
adding an extra $7.9 million to his $15 million in total compensation from 2020. Marathon Petroleum CEO Michael Hennigan made over $21 million in 2021, and Chevron CEO Mike Wirth earned a $4.5 million bonus, bumping his 2021 total to over $22 million.
The big oil companies have their rebuttals: during the COVID-19 crisis and lockdowns when gasoline prices plummeted, most oil companies lost money, to the tune of billions of dollars.
Whoever or whatever is to blame for the skyrocketing cost of energy, there's no doubt that the average consumer is feeling the pinch at the pump. How much longer can consumers – and businesses – continue to shoulder the price increases? There's already a supply chain shortage in the United States, caused in large part by the ramifications of the COVID-19 epidemic. Now, the surging cost of fuel to transport supplies around the nation is driving up the cost of consumer goods, which is one of the biggest triggers for the highest rate of inflation in 40 years.
Tom Walmsley was pumping diesel into his big rig at 4 Kids Fuel & More – CVA. He's a driver for Walmsley Trucking based out of Wichita, and he said the price of diesel fuel is having a big impact on their company. “It costs me about $900 to fill up,” Walmsley said. “Before all this craziness, it cost about $350.”
Walmsley Trucking transports dry bulk commodities, grain, feed, and hay. Walmsley said he drives between 2,500 to 3,000 miles a week, and fills his truck, on average, three times a week. That means the company is spending roughly $2,700 a week for fuel... for just one truck.
Garrett Rippe drives for TCB Trucking, based out of Randolph, Kansas. The company hauls grain, mostly from local facilities to the rail terminals in Kansas City.
“I drive about 3,000 miles a week,” Rippe said. “This truck has only one tank, so I have to fill it every day. It costs about $300.”
Rippe is well aware of the impact, and the trickle-down effect, of rising fuel prices. “When we haul out of a field for farmers, our grain rate will have to go up.”
Another trucker who only wanted us to use his first name - 'Gene' - hauls ammonia and ethanol. Based out of Nebraska, Gene owns his truck and said that his fuel bill for the month of May averaged $3,000 a week. “When the price goes up,” Gene said, “I have to charge more to haul, and that guy passes the cost on to the next guy, and eventually it's the consumer who gets stuck with the bill.”
Gene had a specific opinion as to where the blame lies for the rising gas prices: “Blame it all on Joe Biden and left-wing Washington.”
Greg and Renee Ulberg are from North Dakota, and on vacation in their RV. They were gassing up their vehicle at Short Stop and bemoaned the price at the pump. “We estimate that we'll spend well over $2,000 for diesel on this trip,” Renee said. “There's been some places where we've paid almost $6 a gallon for diesel. Here it's a little more reasonable.”
“It's definitely more expensive than what we expected,” Gene agreed. “But you don't really have any alternative. You either pay for it or stay home.”
Mark Paul, the general manager of Cloud County Coop and the president of Concordia Terminal LLC, said rising fuel prices have had a dramatic impact on business. “All our business is freight, whether it's rail or truck,” Paul said. “One train of grain shipment to the Texas Gulf now costs us $31,150 more in diesel fuel. That makes a huge difference in our profits and losses.”
Paul said that they used to pay truckers $1.75 a running mile to haul grain from elevator to elevator. They now pay $3. Price increases and escalating shipping costs affect almost everything they sell. “It's kind of the same for everything: cattle guards, minerals, clothing – the freight for everything has gone up, and that affects the consumer. If it's shipped by truck and rail, it costs more now.”
Some energy analysts say prices will come down over the next few weeks. Others claim American consumers could be paying an average of $6 a gallon for gasoline by August. There is a term used in the fuel industry: “rockets and feathers”. Prices rise like rockets and fall like feathers.
In the volatile world of fuel consumption – especially crude oil - only one thing is certain: high prices will be around for a while.