Bureaucracy

Dated: 1/12/09

A lot has happened since my last column so I will change my format today to reflect a timeline.

Dec. 15, Crude jumped to $50.05, which was a considerable jump. This jump was attributed to the upcoming meeting at OPEC where they claim there would be a large cut in production in an attempt to raise the crude oil price to $100 per barrel which is double what we have today.

12-17-08 Oil hits $36.43 per barrel in spite of OPEC lowering production by 2.2 million barrels per day. Since all oil producing nations have not agreed to the cuts the oil continues to flow.

12/26/08 Oil is still bouncing back and forth from 34 to 38 dollars per barrel.

Most increases and decreases on the street are due to rack and retail, not world market.

12/29/08 3 days into the escalated Israeli/Palestinian war, oil market increases by 7% to
$38.22. This increase is blamed upon speculation that there might be a disruption of supply in the Middle East even though past history tells up that no disruption is likely at this time.

1/02/09 Crude oil climbs to 46.75 per barrel and the TC street price starts to climb. National news blames the Israeli / Palestinian war, while at the same time President Elect Obama sticks to his guns on green, alternative fuels and no new drilling.

Interesting facts;

1999 Crude oil hovered around $16 per barrel.
July 2008 oil hit an all time high of 147 per barrel.
2008 Americans drove more than 1.4 billion fewer miles in 2008 than in 2007.

Several years back Congress mandated that 75% of all Federal vehicles must be alternative fuel vehicles (flex fuel). Because of that mandate Federal agencies purchased all new fleets of flex fuel vehicles. Since the flex fuel vehicles had less power and were less efficient than their previous fleets of vehicles that were made up of mostly 4 cylinder vehicles, these agencies upgraded to 6 to 8 cylinder vehicles. Flex fueled vehicles run on multiple fuels; gasoline, electric, E-10 (10% alcohol), E-85 (85% alcohol) and other combinations of fuels.

A new study recently revealed that although Congress mandated that Federal agencies must convert to flex fuel vehicles; they failed to mandate that these same vehicles must use alternative fuels. This study showed that less than 8 % of the new vehicles purchased, actually used the alternative fuels. Yes that is correct, most of the new vehicles never used even one gallon of the alternative fuels in the past few years. Now keep in mind that most agencies upgraded from 4 cylinder vehicles to the vehicles that had 6 to 8 cylinders, so not only did they not burn alternative fuels but by upgrading to more powerful vehicles, they actually burnt more gasoline than before. Another interesting fact of this study reveals that in seven states where the federal agencies converted their fleets to the new flex fueled vehicles, alternative fuels were not available. Yes that is correct; seven of the states did not sell alternative fuels. This is your tax dollars and representatives at work.

Of course as the federal government goes, so does many states; after all going green is good for the nation. So many states followed suit and also converted their fleets to the new flex fueled vehicles and yes they had the same results, alternative fuels were not used.

California in order to combat against these new findings recently passed a new mandate that all state vehicles must burn the new fuel even though these fuels are less efficient and cost more than 50% more. What is the governor thinking? California is nearly bankrupt, they are running deficits in the billions, so what sense does it make to mandate that the tens of thousands of state vehicles must pay 50% more for their fuel at this time.

Fuel prices are down now and our Congressional leaders are now trying to convince us that the prices are to low. (Again this is beginning to look like the tobacco industry; tobacco is bad so they highly tax the industry to deter the use of cigarettes.) For years, our government has been advocating the American citizens drive less, last year Americans stepped up to the plate and drove less, not just when the price was high but all year long. So what do we get in return? Congress now wants to raise the gas tax, one plan actually advocates an increase of a buck a gallon or more. As usual the states do not want to be left behind so they are also talking about drastically increasing the state gas tax.

My fellow citizens we have just seen the impact higher gas prices have on our economy; Mortgages in default, higher transportation cost, higher food cost, a failing auto industry and a failing banking industry, that is the effect of higher fuel prices.

This United States of America is hurting right now, our economy is in the dumps, the auto industry needs to be bailed out, the banking industry needs to be bailed out, the housing market has nearly collapsed and unemployment is on the rise. With all this going on right now someone please tell me why Congress is contemplating a pay increase for themselves? This is no time for us to sit back and expect that President Elect Obama will fix all our problems.

1/13/09 Due to the slumping world wide demand for oil, supplies continue to build, and the price of crude oil has fallen again to below $37 per barrel. Understanding that the crude price is back down to below $37 a barrel you must be wondering why the street price is still at $1.869; well don’t blame it on the local suppliers this time.


On December 24th crude oil fell below $37 per barrel and the rack price was down to $1.37 (including taxes); today’s rack price is 1.785! Yes, the major oil companies have increased their margins by 41 cents per gallon.

Get on the phones, or write to your representatives, it is more important today than ever before.


Jan 23rd 2009 Traverse City UL gasoline price is 1.929, one year ago last year the price was 2.979. Crude oil today is 43.65.

OPEC and other oil producing nations continue to attempt to stop the decline in the crude oil prices while stocks continue to grow based on the shrinking demand world wide.
Hundreds of oil tankers filled to capacity continue to circle the oceans or are anchored offshore somewhere in an attempt to shrink the reserves and increase the demand for oil.

There is an interesting phenomenon in oil pricing: Starting an upward swing in prices is very difficult, once the prices do move upward often it is very difficult to stop the increases, the same applies to a downward movement, it is very difficult to reverse an upward trend, but once the prices start to fall, it is very difficult to stop the fall.

There are many oil producing nations, OPEC is just the largest organized block. Most of the time other producers will follow OPEC trends and policies, but once Humpty Dumpty falls off the wall it is very difficult to put him back together. Every nation has its own budgets and needs that they must fulfill, and with many of these nations oil makes up for 50% or more of their budgets.

You will not find many nations raising their prices unilaterally because their clients will simply buy from another supplier, so most nations or suppliers seem to just follow the pack and reap the benefits as prices increase and stabilize. The problems arises when someone breaks out of the pack and lowers their price to increase their volume of sales, this creates an imbalance in the market which can cause the prices to fall as you have seen over the past several months. When this happens, tempers fly and price wars begin.

Keep in mind that oil producing nations reap the profits from the sale of crude oil to balance their budgets and expand their militaries and economies. The world thrives on credit, and when prices fall budgets fall out of balance and nations cannot support their economies nor pay for extras such as war. In order to make up for the lost income due to falling prices, nations or suppliers will increase the production and sales of fuel, when this happens all previous international agreements on production limits fall apart. Now the war begins. It is always much easier to prevent a war than to stop one.

It's time to stand up and be heard

Dated: 10/19/07

On Wednesday, crude oil continued its surge to a record high of $89 a barrel. Some analysts still claim it's demand that is driving crude, while pointing the finger at China and now at Turkey since it's gathering more and more troops on the Iraq boarder. Not only are they not complaining, but they are predicting that the crude price could shoot past $100 per barrel.

It's just preconditioning. There are no valid reasons for crude to be reaching these levels, but people, the prices dropped for a while and you stopped complaining. If you don't continue to be heard, prices will continue to rise. I believe the $89 a barrel price is arbitrary and not backed up by market fundamentals. The crude oil price could just as easily be in the $60 range.

Keep in mind that although the price of crude is $89 a barrel, the rack price and pump price is actually lower than when crude was in the $60 range. So I'll say it again — the fundamentals are not supporting the price.

So far, the price at the pumps has not reflected the crude oil price surge. But it's now starting to show some impact on the rack price, which has been inching up over the past week. Fill your tanks quickly, because in all likelihood, the price at the pump will probably follow and I am not trying to precondition you.

For the past couple years the oil companies, from the majors all the way down to the local suppliers, have been enjoying excessive, record-breaking margins. This past month though, the margins have greatly dwindled at all levels, except for margins derived from crude oil.

Let's follow the money here; although margins are lower at most levels, major oil companies are still raking it in at the crude price level. Keep in mind that Exxon Mobil, BP and Shell are among the largest oil companies in the world, and Chevron is one of the largest in the U.S. Each of these companies has vast supplies of oil, and much of that oil is domestic. They are making record profits selling you, the American public, your own oil.

This country functions best when the public gets involved and stays involved. It's really time to focus here before it is too late. The fact that Europe pays $5 to $6 a gallon for fuel is not a reason for us to expect the same. Conserve where you can, keep your vehicles tuned, use good additives which increase mileage and stand up and be counted. The American public still uses the bulk of the fuel in the world, and that alone should give us some pull.

This column is not here just to bust on the local suppliers and tell all the secrets. It's also to let you know the facts about what is happening in the market, good or bad, and just who I think is the problem or the hero of the week.

Little logic to arbitrary fuel prices

Dated: 10/5/07

Crude oil is hitting record highs in the $80-plus per barrel range, yet the rack price for gasoline continues to fall. As I've said before, in the past couple years the price is more arbitrary than governed by formulas, logic, responsibility and the sense of fair play.

As logic would have it, the crude price goes up and the rack price would follow — that is if margins at all levels of the oil industry were not at record highs! Downstate rack prices are now down to $2.089 (plus applicable taxes, less discounts). It was not long ago when crude oil was priced in the low-to-mid $70s per barrel, yet rack prices for gasoline were at $3-per gallon plus.

This just backs up my claim — oil companies wanted more, so they took it! The difference is in the margins. Hmmm, what could cause this sudden change in attitude?

* * *

Fall is here. How many of you have not yet filled your oil and propane tanks? We often get snow in October; don't wait until the last minute.

I did a short heating-oil price survey for you that shows Schmuckal Oil Co. was on the high end at $2.929 per gallon, Crystal Flash is at $2.899 while Blarney Castle was at a low of $2.839 per gallon. I can remember the days when I was a child riding on my father's delivery truck when the prices ranged from less than 10 cents per gallon in to the teens. Currently, rack prices for #2 fuel oil were at $2.40 cents per gallon, yielding margins in the range of 40 to 50 cents per gallon.

Now, in all fairness to the suppliers, 40-cent margins are not unusual for heating oil and they were actually about the same even 20 years ago. You need to remember that each gallon needs to be loaded, transported and delivered to your home.

I also checked some propane prices. Blarney Castle was at $1.94 a gallon. I also checked Crystal Flash but they would not quote me a price out of Traverse City.

Who sets prices: A look at gas taxes 2 of 3

Dated: 5/18/07

Fuel prices are very difficult to follow and to understand. I keep getting asked, "Why are the prices so high? Who is responsible for the high prices?" I have received quite a few comments so far, and not all with the same viewpoint.

After the first column a reader responded, "Your article appears that it is just a hired gun by big oil. Get to the truth, the greed, and the corruption with the Bush administration." The second column generated a much different response: "Unfortunately today's article degenerated into a rant against Big Oil and American oil producers. You made no attempt to be objective, or explain the international energy industry of which I doubt you know very much. The Record-Eagle prints a bunch of left-leaning, anti-capitalist crap, and your article is just another example. Too bad."

Hmmm, so one week I'm a hired gun for big oil and the next I'm a leftist! Just maybe I'm getting to the truth here.

Gas Taxes: A historical timeline for federal gas taxes;

1919 — Oregon is the first state to install a gas tax.

1932 — Federal government imposes a temporary gas tax of 1 cent per gallon.

1941 — Feds make the temporary gas tax permanent and hike the tax to 1.5 cents to fund the war.

1951 — Feds increase the tax to 2 cents to fund the Korean War.

1959 — President Eisenhower increases the tax to 4 cents to pay for the new interstate highway system.

1959-81 — Taxes remain stagnant.

1982-93 — Taxes increase by 360 percent to 14.4 cents for various reasons.

2007 — Today federal taxes are at 18.4 cents per gallon.

Michigan's gas tax

Did you know that Michigan charges 19 cents per gallon in road fuel tax? Then did you know that each time the gas price increases, the amount of taxes Michigan collects also increases. Despite all the rhetoric from politicians claiming they want to help since Hurricane Katrina, the State of Michigan continues to rake it in through the state's sales tax. Yes that is true, Michigan also collects a 6 percent sales tax on each gallon of fuel sold here. At the bargain price of $3.499, Michigan's sales tax is approximately 19.8 cents per gallon. This brings Michigan's share to approximately 38.8 cents per gallon. Now Gov. Granholm wants to raise the gas tax again! Can we say gouging, or is that just politics?

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Gas margins fell dramatically early this week, but as of Tuesday Speedway seemed to be leading the pack upward with a staggering increase of 20 cents per gallon ($3.499), bringing price margins back to about 21 cpg. As of Tuesday evening a few stations in town had only increased to $3.399 and the same on Wednesday although the rack price dropped approximately 10 cents raising the margins to as much as 31 cents per gallon. The cost of fuel rose again Thursday while Speedway and others dropped to match the retail price of $3.399.

Again, I want to caution you, not all retailers (suppliers) are able to purchase at these prices, although some can actually purchase fuel even cheaper. The prices (although accurate for some) are only quoted to give you a bench mark to follow the fluctuations in margins from day to day. These stated prices also do not reflect day to day operating cost.

	Friday	Monday	Tuesday	Wednesday	Thursday
	5/11/07	5/14/07	5/15/07	5/16/07	5/17/07
Retail	3.299	3.299	3.499	3.499	3.399
Cost of fuel	3.238	3.275	3.287	3.188	3.219
Margin	.061	.024	.212	.311	.18

Who sets gas prices in the U.S.? 1 of 3

Dated: 5/12/07

During the past year or two record profits have been logged by the major oil companies, yet if you ask why, they claim it is just the nature of the business. Severe weather, wars, terrorist attacks, supply and demand—so many reasons, so many variables can affect the bottom line. Here in Traverse City we can see how the weather affects the farmers; lack of rain, too much rain, late frost, all of these weather conditions can impact a farmer's bottom line, but in a much different way. Unlike most businesses, the oil companies have figured out a way to make a profit each time adversity hits, and the worse the crisis or the threat of a crisis, the more (it would seem) they make!

Major oil companies such as Exxon-Mobil claim they do not set the prices and they do not control the market. I must disagree to a point. Exxon-Mobil operates in nearly 200 countries or territories, exploring for and producing oil and gas. Exxon-Mobil's oil and gas fields, both domestic and abroad, produce more than 4 million oil-equivalent barrels per day in 24 countries including but not limited to the U.S., West Africa, Saudi Arabia, and Australia. Exxon-Mobil has interest in 46 refineries in 26 countries, more than 25,000 miles of pipelines and 45,000 gas stations, under the well-known brands of Esso, Mobil and Exxon in more than 100 countries, making it the foremost manufacturer and marketer of petroleum products in the world. Exxon-Mobil definitely has price setting influence!

Let's pretend for a moment that with all these oil wells, refineries and pipelines around the world, Exxon-Mobil still has no influence. Let's discuss domestic oil. Forty percent of the oil consumed in America comes from America. Back in the 1970s it was profitable for the oil companies to produce and market oil in the range of $22 per barrel. So why is it that the major oil companies were recently charging up to $72 per barrel for domestic oil? Often they charge up to $2 per barrel more for West Texas Crude than for imported oil.

Please keep in mind that America has been subsidizing oil wells for many years. Americans are paying up front and in the rear, yet the government claims this is a free enterprise and it cannot interfere. Don't get me wrong, I'm all for profits. All I ask is that the major oil companies stop hiding behind catastrophes, crisis and the threat of a crisis, and just say, "Hey, this is America, I wanted more, so I took more. If you don't like it, buy a bike."

As you can see from this weeks price chart, the stations dropped 11 cents, due to cost decreases, but then cost of fuel actually regained nearly all it lost, squeezing the margins down from 21 cents to about 9 cents per gallon. Almost back to the 30 year averages.

	Friday	Monday	Tuesday	Wednesday	Thursday
	5/04/07	5/07/07	5/08/07	5/09/07	5/10/07
Retail	3.199	3.199	3.189	3.189	3.189
Cost of fuel	3.111	3.078	3.0184	3.056	3.102
Margin	.088	.121	.1706	.133	.087

Once again I caution you, the cost of fuel is approximate and varies greatly from station to station or supplier to supplier. The prices quoted here also do not consider the cost of doing business, and is only a bench mark to demonstrate extreme fluctuations in margins.

From 'jobbers' to the 'majors': The terms of the gas process

Dated: 5/4/07

America is a capitalist society (a philosophy which I strongly believe in) and it's not my intent to judge oil and gas companies for the profits or practices of their industry, but to lay out the facts so you may better understand how energy pricing works and draw your own conclusions.

In future columns, I will provide a summary of the week's retail prices of gasoline in our area and the approximate cost of that product. Others will cover historic and current information concerning crude oil pricing, imports vs. exports, supply and demand, refining, retail, wholesale and rack pricing, fuel taxes, additives and much more.

The goal is to provide residents of the Grand Traverse area the facts of the industry and leave the spin doctors to do their thing. I'll also provide related information about the energy industry and try to answer some of your questions.

Here are some terms I will frequently use in this column:

• Retail Prices: The price you will pay at the gas station.
• Rack: Typically refers to the loading rack where fuel is loaded for distribution at the terminals.
• Rack Prices: This is the price that jobbers will pay when buying direct from the majors.
• Jobbers: Similar to the term "distributor." Jobbers typically have the ability to purchase direct from the major oil companies, and quite often supply more than one brand of fuel. A few examples of local jobbers would be: Blarney Castle, Schmuckal Oil, Crystal Flash and others.
• Majors: Major oil companies. (Exxon-Mobil, Marathon, BP, etc.)
• Terminal: Fuel depot.
• Cost of fuel: Rack price, plus freight, plus taxes.
• Gasoline margins: Retail less cost.
• Historical pricing time line: Historically, prior to 1975, local stations typically priced as much as 25 cents per gallon higher than downstate areas such as Grand Rapids and Detroit. Since the difference in freight from Grand Rapids to Traverse City is only about 3 cents per gallon, the balance of the quarter was mostly higher profits.

Around 1975, self-service stations hit the Traverse City area and the price difference was greatly reduced to within a few cents of Grand Rapids. This resulted in a drastic reduction in gasoline profits. From this point, until just before Hurricane Katrina in the summer of 2005, gasoline margins were quite low, usually under 5 cents per gallon.

Then Katrina hit! Almost immediately rack prices shot up and local profit margins also rose dramatically, from less than 5 cents per gallon to highs of 42 cents per gallon on Aug. 31, 2005. We're talking up to 8 times the profit margins from just a few days before. (Suppliers can use creative bookkeeping to show lower margins, but I'm just passing on the actual margins and prices.)

Since Katrina, local profit margins have remained strong aside from short-term rack spikes.

Over the coming weeks I will elaborate on the above information and explain how this could happen and who really made the profits.

It's important to know that all local gas stations do not pay the same price for the gasoline that they sell. Some stations buy direct from the major oil companies and others buy their fuel from local jobbers (distributors), so profit margins can greatly differ.

Lately, the rack prices have shot up significantly, approximately 15 cents in just the last few days, leaving the local stations with reduced margins of up to 21 cents per gallon.

Thursday's rack price in Traverse City, depending on the supplier, was $2.5542 per gallon. Add in the taxes and you're at approximately $3.09 for Thursday's cost depending upon your supplier and the deal you get. The retail prices in Traverse City were approximately $3.299 per gallon.

Readers may submit questions and comments to thegasman@thegasman.info, where related stories are also available.

Domestic supply may not be answer 2 of 3

Dated: 6/29/07

In 2006 the U.S. hit a 57-year low in the production of crude oil, producing only about 1.87 billion barrels (BBLs). At the same time the U.S. imports were down only slightly from an all-time high of 3.7 billion BBLs in 2005, importing approximately 3.68 billion BBLs.

Many people feel it is wise to import more crude oil since it saves our resources for future years, while others fear being so dependant on other countries for our energy sources. Regardless of which camp you're in, I believe most of you will agree that our energy policies are pretty well screwed up!

I read and listen to a lot of news on a daily basis and when prices are low I do not hear a lot of complaints out there. This leads me to believe that a good portion of the "dependence" talk is more because people are angry about higher prices. One option is to produce more oil, by drilling more wells in Alaska and off-shore. At first glance, this seems to be a good idea and I'm all for it. I just do not believe you will get the results you're looking for. Let me explain.

Throughout the years the major oil companies have been charging us the same price and often more for domestic crude than for imported, sometimes as much as $2 more per BBL.

Major oil companies say they do not set the price, but they charge us more for our own oil than for imported. If it is not them, then who? Sure they will probably say by charging us more they are saving our resources. That makes sense; it's the same thing our government does. Smoking is bad for you, so raise the taxes. If luxury cars and SUVs use too much fuel, raise the taxes and just like the government, major oil companies keep the profits.

For those of you who don't believe we're being taken for a ride, open your eyes and follow the money! If it looks like a duck ... well, you know the rest.

I'm not just beating on the major oil companies because it's easy. My point is if we pay more for domestic crude than for imported, how is it going to lower the price? If we are going to drill more wells, and increase domestic supply, someone has to show some responsibility and use the oil to benefit the public, not just oil companies and their stock holders.

Again please do not get me wrong, profits are great, but this oil belongs to America, not just the major oil companies. An equitable contract needs to be designed before the pipes go into the ground and I do not mean governmental regulation, I mean a negotiated agreement benefiting America. Think Energy Plan!

Two weeks ago I mentioned additives. Additives are one way most of us can reduce our consumption by up to 15 percent while saving money and without changing our lifestyles. I will try to discuss this more in two weeks.

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Riches to rags and back again, has been the trend for the retailers the past 2 weeks.

June 15th thru June 21

	Friday	Monday	Tuesday	Wednesday	Thursday
Retail	3.139	3.139	3.139	3.099	3.089
Cost of fuel	2.925	2.995	2.995	2.967	2.955
Margin	21.4	14.4	14.4	13.2	13.4

June 23 thru June 29

	Friday	Monday	Tuesday	Wednesday	Thursday
Retail	3.089	3.089	3.159	3.159	3.159
Cost of fuel	2.972	3.005	3.008	2.931	2.924
Margin	11.7	8.4	15.1	22.8	23.4

CPG = Cents Per Gallon

Well that’s all for today, check back in two weeks for much more! Keep the questions and comments coming.

The law of supply and demand 1 of 3

Dated: 6/15/07

In the world today, it would seem if you say something enough times, people will not only believe it, but start to repeat it themselves. I believe that's how it is with the phrase "Supply and demand."

So many people are asking, "Why is the price so high," and of course the "smart people" will always answer: "Supply and demand."

They say it so smugly, so confidently that many are too shy to ask for an explanation. Radio talk shows, Sunday morning news, evening news, they are all saying the same words over and over. Some blame the war, some blame China, some blame the restrictions on drilling or the lack of refineries but it always comes back to "supply and demand."

Supply and demand is a real concept that truly does have a drastic impact on prices, but there are so many aspects to consider. Unfortunately, along with the reality of supply and demand, there are also many myths. In the next few columns I will discuss the international and domestic oil market, some facts and some myths.

Who has the supply? The typical answer is usually the OPEC nations. OK, then who and what is OPEC? It's a group of nations that have bonded together to form an oil cartel. The member nations are Iraq, Indonesia, Iran, Kuwait, Libya, Angola, Algeria, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. The OPEC cartel has been based in Vienna since 1965. OPEC meets often to set prices and determine the supply of oil flowing from the individual member nations. Or maybe you would prefer the more simple explanation "" they meet to fix prices and supply.

Recently, certain members of Congress have even tried to charge OPEC with price fixing. Wow, what a concept "" charge them with price fixing. That should really lower the price, right? I don't think so.

Let's just imagine that Congress succeeded, and wins billions of dollars. Do you actually think that the U.S. government is going to send us each a check according to the gallons we used? I don't think so. Or maybe they will use the money to lower the national debt; again, I don't think so. The governmental windfall will more likely just end up funding more pork projects.

Now let's speculate on OPEC's reaction to the charges by Congress. By statute, the purpose of OPEC is to protect their interest both individually and collectively. They can just tighten supply, raise the prices, and recoup their losses; the only winners will be the recipients of the pork projects. You and I will be waiting in long lines and paying even more at the pumps.

If you're really interested in reducing the country's consumption of gasoline and diesel fuel, and you want to save money while doing so without changing your lifestyle, then think fuel additives. Additives can increase your mileage by up to 15 percent, while saving you up to 40 cents per gallon at the pumps. For more information, go to www.thegasman.info and click on additives, or check back for the next column in two weeks.

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The week of 6-4-07 the cost of fuel has been dropping rapidly and the stations have dropping slowly.

	Friday	Monday	Tuesday	Wednesday	Thursday
Retail	3.479	3.469	3.439	3.399	3.399
Cost of fuel	3.189	3.209	3.129	3.000	2.96
Margin	29.9 cpg	26.9 cpg	31 cpg	39.9 cpg	43.9 cpg

Week of 6-11-07 both the cost of fuel and the retail prices have continued to drop although not as quickly as the previous week.

	Friday	Monday	Tuesday	Wednesday	Thursday
Retail	3.299	3.2229	3.229	3.229	3.159
Cost of fuel	2.944	2.875	2.895	2.88	2.876
Margin	35.5 cpg	35.4 cpg	33.4 cpg	34.9 cpg	28.3 cpg

CPG = Cents Per Gallon

Well that’s all for today, check back in two weeks for much more! Keep the questions and comments coming.

Suppliers and their profit margins 3 of 3

Dated: 5/25/07

In a March 30, 2005, Record-Eagle news story, Linda Casey, spokeswoman for Marathon-Ashland Oil Co.—which supplies gasoline to area Speedway and Marathon stations—insisted that despite record prices, oil companies and retailers were not cashing in on the high costs, saying profit margins for gasoline were only running at one or two cents a gallon.

On Aug. 30, 2006, I also spoke with Casey about the increased margins. Her first reaction was to state that Speedway reported a 10-cent profit margin for their retail outlets for the past quarter. Even at 10 cents, this reflects a 500 percent increase in profit margins before Hurricane Katrina two years ago.

I then explained to her that the current profit margin was approximately 27 cents plus. She seemed to be at a loss for words and said she would look into things and get back to me. I later received a call back from Angela Graves of Marathon-Ashland, who explained that the 10-cent margin was a gross margin, and an average of all stores. Graves also stated that Speedway's philosophy was to price competitively per market. I then asked her if Speedway had a ceiling for profit margins. Her answer was that she did not know of any profit margin ceilings.

So before Hurricane Katrina, Casey stated Speedway was only making about 2 cents per gallon. Within a day or so after Katrina, local margins spiked up to approximately 42 cents (plus) per gallon. On Aug. 30, 2005, Casey stated Speedway was only making about 10-cent per gallon profit, while on that particular day the local margin was actually in excess of 27 cents per gallon. Hmmmm.

Two weeks ago, Speedway tried to lead the pack locally at $3.499 per gallon, but Mutual and a few others pulled it back to $3.399. Then last week Speedway again tried to lead the pack upward to $3.659, but again Mutual and others pulled it back to $3.599. By May 24, Speedway was at $3.659, $3.599 and $3.549 depending on the station. OK, maybe Speedway will settle at a competitive price, but they have definitely taken the lead on price increases in the Traverse City area.

Since Katrina, local suppliers definitely have shared in the increased profits. But I must add, when there is a hit to be taken, the local suppliers are the first in line—after you, the consumer.

Suppliers also can save by purchasing their fuel at downstate racks and many suppliers receive various discounts of 1 percent plus. This means that suppliers at times can increase their margins by 5 cents per gallon or even more over what I am quoting.

So in closing, I would like to answer the question, "Who sets the gas prices?"

THEY ALL DO! The major oil companies, the feds, the state, local suppliers and don't forget about OPEC.

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This was another rocky week for the local suppliers, by last Friday they had lost most of their margin, but by Thursday the margins had rebounded back to 25 plus cents per gallon. Lets all thank Speedway for their strong leadership this week!

	Friday	Monday	Tuesday	Wednesday	Thursday
	5/18/07	5/21/07	5/22/07	5/23/07	5/24/07
Retail	3.399	3.499	3.659	3.599	3.549
Cost of fuel	3.348	3.41	3.442	3.357	3.294
Margin	5.1 cpg	8.9 cpg	21.7 cpg	24.2 cpg	25.5 cpg

Although the retail price of Gas has dropped this week (5/27 – 6/1), it has not dropped as fast as the cost of fuel has dropped.. Margins have increased to about 31.4 cents per gallon as of Wednesday.

	Friday	Monday	Tuesday	Wednesday	Thursday
Retail	3.479	3.479	3.479	3.479	3.469
Cost of fuel	3.265	3.265	3.265	3.165	3.165
Margin	21.4 cpg	21.4 cpg	21.4 cpg	31.4 cpg	30.4 cpg

CPG = Cents Per Gallon

Again, please be aware, the quoted prices are approximate and can vary from rack to rack and station to station. Some retailers are not able to purchase at the above prices while others are doing considerably better, since I am only quoting prices out of Traverse City.

TC tops state, national fuel prices

Dated: 7/27/07

Just recently when Traverse City was charging $3.319-plus, the national average for unleaded fuel was only about $3.17 a gallon. Yesterday, while Traverse City was at $3.109, Flint's average was only $2.919, according to AAA. Even Cedar in Leelanau County was at $2.999 Thursday and still making a hefty profit!

Then and now.

The Traverse City market is different than that of downstate, since we are a major tourism area. I'm sure you've noticed this market is much more volatile with prices continuously rising and falling.

As a child, I lived in Auburn Heights, now known as Auburn Hills. Most summer weekends we came north to Leelanau County for the clean air, water and just to get away from all the people. It seems they too had the same idea.

As far back as I can remember, Traverse City was always about 25 cents higher than downstate. I'm 54 years old now and I remember purchasing premium gas for my 1968 high-performance Cougar XR7 for 17 cents per gallon in the Detroit area. The price wars were brutal back then.

The higher prices and margins remained until the summer of 1975, when self-service and the almighty convenience store hit Traverse City. At that time the corner garage disappeared, margins were greatly reduced and Traverse City came in line with most of the state. Gasoline prices didn't just get more reasonable, the pendulum swung all the way from hefty margins of 20 to 30 cents or more to about 5 cents per gallon, even less at times. This pricing trend stayed in effect for almost 30 years until the day after Hurricane Katrina.

Ah yes, Hurricane Katrina, a time of sadness for this country as we sat glued to our televisions watching the elderly, the handicapped, the children and families trapped on rooftops and clinging to trees, hoping and praying someone would save them. Most of America felt the pain. Many went to New Orleans to help where they could while others sent money. Yes, it was a sad time.

In Traverse City though, while most watched in disbelief, others were busy capitalizing on the crisis and even hiding behind it while they bumped their average profit margins by as much as eight times. I remember the media interviewing local fuel jobbers and hearing them say, "It's not me, it's the storm, it's supply and demand," and my favorite, "It's major oil." (paraphrased). Yes, the day before Katrina, as I have said here before, margins were approximately 5 cents per gallon. The day after it was 41-plus cents per gallon.

If you ask, there are always explanations such as their operating costs. Or maybe they will just deny the profits. But local jobbers have always had operating cost, and yes, when the rack price goes up it will affect cost, which is why they raise the price also. But we are talking profit margins that increased eight times overnight!

OK, it's been a couple years now of huge margins and the storm is over. Tell me the reason that the margins have now increased to 40, 50, 60 cents per gallon. The weather is good, the war is progressing, so why the newest increases in margins?

Yes, you heard it right. When buying out of North Muskegon in recent days, figuring in the various discounts, local margins are in the 50-plus cent range. Over the past few weeks you have seen the retail prices slowly fall by 15 to 20 cents per gallon, while in reality, the cost has dropped by approximately 60 cents per gallon. Come on Traverse City, follow the money and don't be fooled. The cost is falling but the margins are climbing. The restraint is gone, the responsibility is gone, and profiteering is definitely in!

Following the major oil money trail 3 of 3

Dated: 7/31/07

Does anybody out there really believe there is an energy shortage, either internationally or domestically? If you think so, call me because I have a special this week on several bridges and some really great swamp land.

There is more than enough oil internationally to last many years. OPEC meets often to decide on the level of production required to meet the needs of their clients. Canada is rich with oil, Mexico is rich with oil, many countries out there are rich with oil, including the United States of America.

Enough oil is not the problem—the problem is who has and controls it. The problem is the energy policies of the U.S. and the country's politicians, who are too weak to stand up for the oath they took. The problem is also American consumers with short attention spans.

OPEC does not control our supply. It's the organization from which the major oil companies purchase their oil. Major oil companies control our oil. They have entered into supply contracts all over the world.

Yes, it's a big job to meet the energy needs of the American people. But let's face the facts. Major oil companies control our supply. They set up their own supply contracts and determine the prices for the products they control.

Now before you tear up the paper, try to understand what I am saying. I am not against the major oil companies. Major oil companies did not grab this responsibility. Our government, and our way of life, made it so. Small oil companies could never meet the needs of the U.S. and I certainly would not want the government controlling our energy supply.

But the problems we have today started many years ago when our government gave the oil companies control over our supply. Remember power corrupts, and absolute power corrupts absolutely. Is corruption too strong of a word? OK, then try greed.

America is a capitalist society, a free society. Large portions of our population still believe that we have God-given rights "" freedom of speech, freedom to bear arms, freedom of choice. I fully subscribe to these beliefs. But with choice comes responsibility. Our system works because most businesses show restraint, and those who overcharge die off.

During the past few decades, I feel there has been a change in America and although we remain the most powerful country in the world, all changes are not for the better. Come on people, wake up and follow the money. In a normal business if your equipment fails, you lose money. Bad weather at the golf course and it loses money. If a farmer's crop fails due to drought, flood or locusts, he loses money.

But not so with major oil. Again, follow the money. Hurricanes strike our oil rigs and the major oil companies make record profits! Refineries go down and the oil companies make record profits.

Threat of hurricanes, or a threat of war? Yes, record profits.

For many years major oil has been synonymous with major money, but it's different today. Today it seems the restraint and the responsibility are gone. Today it's all about the profits. The delicate balance of supply and demand has been broken. Major oil companies have the supply, and only they can meet the demand.

I'm really torn here. I'm against the government stepping in and making things even worse, yet someone needs to return the restraint and responsibility back to our energy policies.

That brings me back to the comment about consumers' short attention spans. The demand comes from you and me. Quite often when the price is high, the public gets angry and starts to demand action and the politicians take notice. But as soon as the price backs off a little, Americans lose interest.

Like I said in my last column, after $3.50 per gallon, $2.98 looks pretty good. Even after the price backs off we need to keep our focus and continue creating an energy policy that will take us out of the hydrocarbon era.

We need to appeal to the CEOs to show restraint. When America is strong and trouble-free, take the profits but in moderation. When America is suffering, this is when they really need to show restraint and not kick us when we're down.

Please tell me if I'm wrong. Is restraint and responsibility too much to ask for?

Now from you America, I ask you to do your part. Additives and tune ups will reduce consumption up to 15% while saving you money.

Take some action—don't just complain.

Still riding the roller coaster

Dated: 8/24/07

We are still on the pricing roller coaster; up a lot, down a little. Recently we saw a few days of relief in the gasoline prices at the local retail outlets. The story for the past two weeks was the rack prices dropped quickly, then the stations slowly followed -- so slowly that when they finally got around to dropping their prices the rack prices had already spiked upward again. Once the trend is downward, it's hard to get someone to turn it around and go back up. When this happens the margins are lost.

Over the past week or more, Speedway has been trying to push the price to $3.099, but Mutual lagged behind slowing the increases. But the roller coaster did not stop there. Now that the stations are finally making upward movement, the rack price has dropped drastically again, restoring the larger retail margins which so far they are keeping.

My last column seems to have ruffled some feathers out there, with responses written in the newspaper and e-mailed to me.

For those who missed the last column, I discussed the fact that the governor and other agencies were using the Minnesota bridge disaster to make another run at raising gas taxes. I pointed out that the governor was misleading the people by saying our state ranked 33rd in the country for road taxes, when actually the state also charges an additional 6 percent sales tax to each gallon sold in Michigan. Not only does it charge the sales tax on the fuel, but also on the federal road taxes. My column in no way stated that this sales tax was being used to fix our roads. It merely listed the taxes attached to a gallon of gasoline sold here.

It was also accompanied by a chart that showed the taxes charged in each state using the same criteria.

One forum was authored by an employee of a major asphalt company, and I received an e-mail from a worker at one of our fine road commissions. Both have a financial interest in these taxes since they fund their jobs and both wanted to point out that not a cent of the sales taxes derived from gasoline are used to repair the roads. This was my point -- if the state used all the taxes that they charged on a gallon of gasoline to upgrade our roads and bridges, we would have no infrastructure problems. This is the same point our president made recently when asked if he would support an increase in the federal road tax.

In closing, please remember you do not have to stop driving, change your lifestyle or even spend money to reduce your fuel consumption. There are plenty of additives on the market that will increase your mileage by 10 percent to 20 percent, depending on your vehicle. Proper tire inflation and a tuned car will improve your mileage even more and put dollars back into your pocket while doing so.

The ups and downs of state road taxes

Dated: 9/11/07

First off my heart goes out to the people of Minnesota and to all who have suffered a loss with the collapsing of the bridge; it is truly a sad situation. It's my understanding the government is doing all it can to find the missing people and reopen the Mississippi for traffic.

Please keep in mind, at this time they do not know the cause of the bridge collapsing, yet you're already seeing various groups pointing fingers and blaming the Bush administration. This is not a time for blame, it's a time to pause for prayer. Once the investigation is completed and the dead are buried there will be plenty of time for debate and blame.

Already the politicians are jumping into action claiming poor infrastructure and a lack of money as the cause. Already you are seeing the politicians of Michigan reorganizing their efforts to raise the road taxes.

My fellow Michigan citizens, this is crazy. Only twice in the last decade or more do I remember hearing of a major bridge collapsing. We do not know the cause of the most recent collapse and the other was caused by a major earthquake in California.

If the politicians are truly worried about our bridges and roads, then [they should] make better use of the monies they already collect.

Politicians, when telling your so-called truths, tell the public the whole truth! Stop running around Michigan stating our state ranks 33rd in road taxes. Tell the rest of the story. Yes, we only charge 19 cents per gallon for road taxes but a few years back the state passed a law to charge a 6 percent sales tax on gasoline. Depending upon the current price of fuel this can double the tax the state collects per gallon.

Michigan is not at the bottom of the road tax list; it's placement fluctuates near the top 10.

Just a few price decreases ago our politicians were threatening to sue the oil companies for gouging. Today they are begging to raise the road tax (gas tax), thereby raising the price of gas, not just on the rich but also on the poor. This is an old tactic—use the catastrophe for gain to push their agenda.

Record profits take toll on consumers

Dated: 9/22/07

Will this pricing roller coaster ever end? Week after week the gasoline prices, both cost and retail, have been up and down, then down and up. It seems that by the time the retail prices start to fall, the rack prices have already started to increase and vice versa, so you barely see even a few days of relief.

This past week there has been an interesting situation in the market. As the price of crude rose to more than $80 per barrel, the rack price continued to fall and, yes, the retail price also fell. Think about what this means for just a moment: Traditionally, as the price of crude went up, the rack and retail price also went up. The fact that this did not happen shows that the rack price is more arbitrary than the so-called experts out there would lead you to believe.

As time goes by, some readers of my column want to disagree and justify what is happening out there, attempting to convince me that record profits month after month are OK. They say, "This is America and profits are the American way."

Although I happen to agree with most of those points, I always end up at the same conclusion — it is not OK. Yes this is a capitalist society, the greatest society in the world, but I believe things are off tilt. Corporate responsibility is missing, stockholders are demanding profits, profits and more profits. After all, isn't that why they invested? Sure it is, but many of these stockholders would like to be able to pass their valuable stocks on to their children. Can we say Enron?

Some corporations have learned from their mistakes. Lumber companies now plant many trees for each tree removed. They have learned not to clear-cut forests, and that moderation and restraint today will pay off for many generations in the future.

So here is my message to Mobil, Shell, Chevron, BP and all the rest: Although record profits are great to report once in awhile, it is not good to post these record profits quarter after quarter on the backs of the American citizens. You just cannot keep biting the hand that feeds you.

It's been said that "for evil to survive good men must do nothing." Well, my fellow Americans, if we do not object and take action, gas prices will continue to climb at record speeds. (Hmmmm, I'm starting to sound like a bleeding-heart liberal.) Throughout the history of America when one side pushes too hard, the other side has found a way to deal with the situation.

The auto union pushed and pushed until the auto industry moved their factories and jobs to other countries.

The good, caring people of northern Michigan pushed the farmers for more money and better living conditions for migrant workers, so the cherry industry changed to automated tree shakers, eliminating the need for many migrant pickers.

England taxed and taxed our citizens until they were invited to the Boston Tea Party.

Please, I am not taking sides or trying to minimize any of the above examples. I'm just saying that when push comes to shove, Americans usually figure out a way to not only survive but to thrive. All through history, various leaders who've suffered from visions of grandeur, have fallen short of their goal and met their fate.

When you follow the money, it usually leads to Big Oil

Dated: 11/2/07

As crude oil continues to rise, it’s starting to impact the rack and retail prices, and I’m actually surprised it took so long. Nothing has really changed out there. Mexico is having some production problems, but nothing that would add $25 a barrel. Even Rush Limbaugh stated the other day that it’s just speculation driving crude prices higher.

Imagine you’re at an auction and an object is offered with an approximate value of $60. The bidding is going slowly, then someone in the crowd whispers that the object is one of a kind and all of the sudden, several bidders decide that they are going to own it no matter what it costs them. The bidding goes up and up.

That’s pretty close to what is happening in the oil market today. There is so much fear that there will be a shortage due to the war in Iraq — and now more speculation there may be a war with Iran — that speculators are bidding up the price.

Keep in mind, OPEC didn’t just hold a meeting and say, "Okay the price today is $94-plus and tomorrow we will go up again." Someone out there is starting the whisper campaign and it is really starting to catch on.

Now who do you think will be the biggest beneficiaries of these increases? If you follow the money when you’re talking about price of crude, anyone who has the vast stocks of the crude is making the money. Exxon Mobil, Shell, British Petroleum and Chevron own the crude, and now we can add OPEC, Mexico, Venezuela, Iran, Canada, etc. They’re all making money.

Too often Big Oil is given a pass; recall previous columns where I spelled out some of the assets of Exxon Mobil and the others. Also keep in mind that approximately 40 percent of the crude oil is from American deposits. Why do they have to charge us $94 a barrel for American oil when we all know that a barrel of oil is profitable at $30. Don’t buy into the idea that if we sell American crude cheaper there will be a run on our oil. They turn on the tap and they can turn it off again. It’s about profits—Big Oil profits.

There is another byproduct of all this money flowing so freely. Iran owns vast deposits of oil. This is what funds its military. It’s the same all over the Middle East. It’s in their interest to keep the crude price high.

Locally the rack price has been climbing the past few days, not by a penny or two, but increases of 7 cents a gallon or more daily. That’s why you recently saw the pump prices pass the $3 mark again. Fill your tanks because it looks like it will continue for a while. On Thursday, Mutual was still holding at $3.079, while Speedway is leading the pack to 3.199.

I also want to thank the Clark station on Division Street in Traverse City for bringing back full service again. It’s so nice to pull up to the pumps and have smiling faces greet you, fill your tank, wash the windows and ask if you would like a beverage from inside. I especially want to let Clark know that their man Carl is friendly, courteous, efficient, and does a great job. For all you patrons out there, if we want to keep full service you have to use the service — and don’t forget to tip the attendant.

Keep the questions and comments coming!