Recently the media has been utilizing headlines including: “Energy Companies Detail Hundreds More Layoffs,” “More Job Cuts Expected for Oil Workers in 2016,” and “Oil, Gas Companies Lay Off Hundreds More Texas Workers,” to make it appear as if the recently low gas prices are creating massive losses for oil and gas companies. In reality, the margins the companies are dealing with are significantly higher than they historically have been.
The highest price that WTI Crude Oil has been sold at is $147.42 a barrel in May of 2008. Since there are 42 gallons in a barrel this brings the price per gallon to $3.51. At the same time, the national average for a gallon of refined gasoline was $3.85. This creates a $0.34 margin per gallon for companies to work with to refine the oil, transport it, cover factory overhead costs, cover employee salaries and profit.
Using the same logic as above, the lowest price crude oil has been recently was $27.70 a barrel on January 20th, 2016. This makes the price per gallon $0.66 which would lead one to assume that the price per gallon of gasoline would be around $1.00. In reality, the price on January 20th was $1.83 a gallon. This creates a $1.17 margin for companies to work with to cover fixed costs, variable costs and profit. This is almost 3.5 times more margin to work with than seen in 2008.
An extra $0.83 for a consumer product doesn’t sound like much of an increase, but that is about an extra $15 for a full tank of gas, using an 18 gallon tank. This really makes one wonder what is done with the money paid for gasoline if the companies can survive on a $0.34 margin. Perhaps the United States should revert back to capping the mark-up companies place on gasoline.
Depicted below are charts of WTI Crude Oil against the national average for a gallon of gasoline from 2006-2016. As you can see, Americans paid more per gallon of gas when crude oil was $27.70 a barrel versus when it was $32.40 a barrel in late 2008 through early 2009.
Sources: WTI Crude, gasbuddy.com, rigzone.com, fuelfix.com, USA Today
Notice: The data reflects WTI Crude Oil and exact prices could vary slightly.