Do Oil Companies Make Money on High Gas Prices?
Yes, they make money—but let’s look at how much profit is from gas.
www.convenience.org
Interesting takeaways.
Less than .01% of Gas convienience stores are owned by a major oil company. Most own ZERO>
Only 39% are BRANDED convienience stores meaning they have Exxon or Shell on their sign. The rest buy their gas from whoever they want, whoever distributes in thier area.
Branded convienience stores only means they pledge to buy from that oil company.
Oil companies make their money on oil, NOT gas. They bring their oil to refineries and a distribution system sells that gas to the stations.
Chevron with Techtroline just means the refinery makes that GAS BLEND to Chevron specifications. etc.....
So, when you see announcements about profits or earnings reports of oil companies, don’t confuse them with your local/neighborhood convenience store that’s competing for your business every day to fuel your vehicle. Net margins at c-stores and gas stations are only 1 to 3% before taxes. Fuel retailers know that their customers are price sensitive.
If oil companies don’t make much money in “downstream” operations, where do oil companies make their money? It’s in their name: from oil, whether that means “upstream” operations of drilling for it or “middle stream” operations of refining it. It is important to recognize that oil producers don’t determine the price of oil—it is an international commodity that is traded on the open market, which means that traders set the price based upon their expectations for demand and supply in the future.
Breakeven costs to “produce” oil vary wildly, depending on how easily it flows to the surface via wells. It readily flows from Saudi Arabian fields, but the costs are higher for offshore drilling and on many U.S. oil fields. A survey of oil producers by the Dallas Fed found that oil prices needed to be above $56 a barrel to profitably drill new wells, with breakeven costs lower for existing wells.
When prices are elevated, it is tempting to evaluate profitability at that moment in time—but to fully understand profitability in the fuels sector (from oil companies to convenience retailers selling fuel) requires looking at a longer period. For example, in 2021, oil prices averaged $71 a barrel, meaning oil producers could expect a profit of at least $15 a barrel, whether that oil was refined into gasoline, jet fuel or home heating oil, among other options. But in 2020, oil prices averaged $42 a barrel for the year, meaning it was difficult to break even producing oil. Most oil companies experienced losses for the year.
Convenience retailers selling fuel prefer lower gas prices because that means their customers will be in a better mood knowing they have extra dollars in their wallets. These customers are also likelier to go inside the store to buy a snack, drink or meal—in-store products with higher margins than gasoline. And, of course, lower prices mean customers can afford more than a costly fill up.
