Re: E-85

MTB416 - check your sources. About 10 cents profit per gallon is correct, or at least close. And taxes - check the pump the next time you go. State and federal taxes on gasoline are 30-40 cents per gallon in most areas.

The issue is that most people only hear what the "news" stations say, and it is always about "Big Oil." And all they report is the record profits. Now, I have not read up on recent annual reports from the oil companies, and perhaps the profits are record, but why is that? It's because they can sell all they can produce, and production is at record levels. Refineries are operating near capacity, and no one will allow more refineries to be built. The result is a scarce resource. Also, a small event, like an unplanned shutdown at a large refinery, can cause the price of fuel to rise. Some refineries produce 300,000 barrels per day (42 gallons per barrel), so if they go down it affects the supply. And when a large event disrupts supply, like the hurricane season of Katrina and Rita (many refineries affected), fuel prices rise dramatically. Perversely, the prices in California were not affected much, since CA has refineries dedicated to the special fuel makeup mandated there, and they are not in the gulf area.

Every spring, and every fall, the refineries have to go through a turnaround to shift to the appropriate fuel for the season (mandated fuel compositions in many locations). This shutdown period affects the prices.

FMD - the definition of profits is the money left after paying expenses. And some of the expenses are dividends. The dividends are paid to stock holders, who by and large are mutual fund investors, not the oil company executives. Dividends are paid as an incentive to get people to invest in the company.

According to ExxonMobil's 2006 annual report, of a sales volume of $365 billion, it spent $19.9 billion on capital and exploration expenditures, $7.6 billion on dividends, and $29.6 billion on stock purchases. Net income was $39.5 billion. I don't know what business you're in, but many businesses would not be happy with net income only 11% of sales.

Disclosure: I am a chemical engineer with an MBA. While most of my career has been consulting for the chemical industry, some in my company (a group of chemical engineers) have spent their careers working for oil companies, and I have validated the basic content of the above with them.