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Soaring prices fuel refinery profits

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Soaring prices fuel refinery profits

CONSUMERS: A state agency says oil companies, not gas stations, are benefiting from increases.

March 25, 2000

By ANNE C. MULKERN The Orange County Register

Don't blame this month's soaring gas prices on higher crude-oil costs.

Most of the extra money drivers paid at the pump went to oil refineries, state records show.

California-based refineries since early January have nearly tripled the amount they charge for manufacturing costs and profit. That share jumped from 24 cents per gallon in early January to 66 cents this week.

Crude-oil costs rose just 8 cents per gallon.

Oil companies denied they're making more money, and said they increased prices because costs had risen. But the state Energy Commission said that, for most of March, oil company data show increased profits.

"There's profit-taking going on at some refineries," said Claudia Chandler, Energy Commission spokeswoman. "Gasoline is a free-market commodity. They're going to price it at whatever the market will bear."

Industry analysts say oil companies were able to raise prices because, as crude oil climbed to record highs in March, gas supplies ran short. Demand increased and drivers were willing to pay more.

The increase allowed oil companies to boost profits, said Jim Osten, chief energy economist with Standard & Poor's.

"Certainly they're making more money," he said. "But they couldn't raise the price unless there were an imbalance in supply and demand."

Gasoline has jumped 43 cents per gallon since January, to an average of $1.79.

The state analyzes the price of gas based on information from oil companies and gas station dealers. Those data are merged into a composite.

Taxes currently account for about 49 cents of the price per gallon. Crude oil accounts for 66 cents. The rest is the oil refiner's cost and profit.

Gas station dealers normally take about 6 cents per gallon for cost and profit, but for the past month, they generally haven't made money.

Normal refinery margins are about 20 to 25 cents, the Energy Commission said.

Chevron Corp., which refines the most gasoline in California, said the margin increased because of higher costs  the company ran short of gasoline and had to buy extra at higher prices to meet dealer demand.

"We're making less money in the business of refining and marketing," said Chevron spokesman Fred Gorell. The company, on average, makes only 2 to 3 cents' profit on each gallon of gas, he said.

The Energy Commission agreed that a few refineries were forced to buy extra gasoline in February. But by early March, Chandler said, refineries were again making gasoline at normal levels. Production is up 3 percent over this time last year, she said.

A stock analyst who tracks Chevron Corp. said the company is expected to report earnings next month that will triple last year's. Last year crude was selling at about $12 per barrel, compared with its current price of about $28.

Stock portfolio manager Brian L. Eisenbarth, with ABN Amro investment bankers near San Francisco, said production costs don't change much from one year to the next.

"When oil goes up, it all goes to the bottom line," Eisenbarth said. "When the price of gas goes up and the price of crude goes up at the same time, they're just making more money across the board."

Atlantic Richfield Co., which has 900 gas stations in California and 124 in Orange County, disagreed with how the state compiles its numbers. Arco includes the cost of crude oil in its profit and cost margin, spokesman Paul Langland said.

The company had to spend more to buy oil at a higher price, Langland said. Arco drills for and sells crude oil in Alaska, but Langland said the company's exploration arm is separated financially from its refining operations.

"To say that (the state) representation reflects Arco is completely inaccurate," Langland said. "We're not making more money off of (higher) gasoline prices."

State data also reveal who's not making money. While oil companies enjoy higher margins, gas station dealers haven't been profiting from gas sales, Energy Commission records show. Many dealers actually lost money after accounting for labor, real estate and other costs.

Dealers said they make money on other parts of their business, such as convenience store sales, carwashes and repairs.

In early March, dealers at stations selling brand-name gas were losing an average of 4 cents per gallon on every sale, the state said. Those selling at independent stations lost as much as 12 cents per gallon.

"We cannot raise the price becuase we have lots of competition around," said Joyce Aboulhosn, manager at Ultramar gas in Placentia. "We're not making any money. Believe me, it's true."

-- Martin Thompson (, March 26, 2000

-- Flash (flash@flash.hq), March 27, 2000

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