Jumpin' Jack Flash

There's a popular mass email about gasoline prices and boycotting Exxon Mobil to force them to lower gas prices that regularly circulates around the Internet. (Sometimes it advocates a national day of boycotting all gas stations.)

Unfortunately, what sounds like a nice idea doesn't work mathematically.

Let's say a barrel of crude oil is $100. It's actually a bit more than that right now on the spot market, but let's stick with a nice, round number. There are 42 gallons in a barrel of crude, so the crude oil, unprocessed in any way, is $2.38 a gallon.

Now, only about half the oil in a barrel ultimately becomes gasoline — the average yield from a barrel is 20 gallons of gasoline, seven gallons of diesel fuel and then a variety of other petroleum products — but let's not worry about that for now.

In Maryland, the combined state and federal taxes are 41.9 cents per gallon, right at the national average (which is 42 cents). Add that to the $2.38 "pumped from the ground" price and we get $2.80 a gallon. That's before the crude oil is refined (which both costs money and wastes some oil when impurities are removed), before detergents and other chemicals are added, before it's transported to a distribution center, then to a gas station, and finally pumped into your gas tank. I don't like paying $3.30 (give or take) for a gallon of gas, but given crude oil prices right now it's hard to see how Exxon Mobil (or anyone else) could sell it for much less.

What if Exxon Mobil said "Okay, we're going to make no profits, and sell our gasoline at cost." What if the gas station owner said the same. (By the by, a friend of mine who owned several Mobil stations told me he makes 3-4 cents a gallon. If not for auto service work an sales from his convenience store, he couldn't make enough profit to stay open.)

What do you think this profit-free gas would cost, if crude oil plus taxes is $2.80 before we've refined or transported the oil? Ten cents less than we pay now? Twenty cents? I'm not defending Exxon Mobil, though we happen to own some Exxon Mobil stock. But the reason the company makes such huge profits is because of the billions of gallons of gasoline it pumps, refines and sells, not the profit it makes on each gallon. Gasoline is a low margin business.

One man's opinion, for what it's worth.