I'm curious how the oil companies are profiting so much from high gas prices. I've read about their huge profits and am curious how they are profiting so much, because I know that they aren't selling more gas. I also know oil is used for other things besides gas, but it still doesn't make any sense.

Anyone know?

It's used to make many things. For instance plastic. The high gas prices don't bother them because they charge more if oil prices increase. They make their profit by high volume sale, not high profit margin.

Oil companies profit from both high profit margins and high volume sales, in fact high volume sales equals to high profit margin in the first place. Their profits are at an all time high because of the spike in oil prices. They also benefit from cheap labor from under-developed countries. Its the only commodity that has very little over-see, and usually the over see-ers are the politicians and head of states of the world. In the middle east for example the oil industry is owned by the head of states and other politicians. Its the only commodity always in demand regardless of the price, lets just say its a suppliers market. Oils is used for a lot of things incuding kerosene, diesel, gasoline, natural gas, and many more. I don't think we'll ever really stop using oil, even when we eventually find alternative engine fuel, not for a very long time.

The market for oil is highly inelastic. That means consumers do not respond to prices by changing their purchasing habits. Rather than buy less gasoline, they just bitch more.

Oil futures speculation has driven up the price of oil based on fears of interuptions in supply. The gasoline futures market will reflect the oil futures market since gasoline is a derivative of oil. Thus, those who are today trying to secure gasoline deliveries for months from now, are willing to pay more because they are also worried about interuptions in supply oil. Since the cost for the oil company to produce a gallon of gasoline don't go up as much as the price paid to them by wholesalers, they profit more.

Did anyone really answer the question? They are in fact not selling a different amount of gas, as Roman said. So the fact that they would make more profit on a higher volume is irrelevant. They're paying more for their raw material wholesale, as Wes said, so their profit margin is probably the same as always.

So why are their profits higher now?

Basically you are being charged more per gallon than the actual cost increase.

They're paying more for their raw material wholesale, as Wes said, so their profit margin is probably the same as always.

So why are their profits higher now?

There are two reasons. One is that these companies also own oil reserves, and so profit from a rise in oil prices. The other is that last year's hurricanes disrupted refining capacity, and so the price they can charge for the gas from the remaining facilities has gone up even more than the price of crude oil, further enhancing profits.

... There is still 55 gallons of crude in a barrel. ...I may be wrong, but think that a barrel of oil is significantly less than 55gallons. I also think that the correct answer to that old problem (which is heavier? _ a pound of feather or a pound of gold?) may be a pound of feathers as I am almost certain that their are only 12 oz to the "pound of gold. (but each of the gold ounces may be 16/12 larger so I am not sure.)

Perhaps some one will confidently clarify. I.e. tell how many gallons in a Barrel of oil (and if an oil gallon is same volume as a water gallon) likewise for gold.

Billy T:

I stand corrected. I dont know why I couldnt find this earlier, but I did now. Must have been a wrong keyword.

This page says a barrel of oil is 42 gallons, but another page says 35. I dont know which is right.

http://www.energy.ca.gov/gasoline/whats_in_barrel_oil.html

When you say "oil campanies," you have to differentiate between oil drilling companies, oil refining companies, oil distibuting companies, and oil sales at the gas pump or natural gas selling companies. It sounds like your question is about oil refineries and the answer to that was given above.

I think there are five main reasons for the recent dramatic price increase:

1) First and foremost is the dramatic increase of energy demand in developing China - and India - with one quarter of the world population doubling car sales and industrial needs just over the last few years (~10% annual growth).
2) The war in Iraq limiting previous oil supplies.
3) The threat of sanctions being put on Iran's supply because of their nuclear enrichment program.
4) Disruption of supplies because of the conflicts in Nigeria.
5) Panic buying in oil futures speculation.

First of all you need to know there are two types of oil companies, primary and secondary companies. Primary oil companies make their money from shares and contributions, franchise, selling distilled oil to gas station owners, providing oil for governments amenities like the military and social infrastructure, civilian amenities like airlines, and of cause controlling price levels. These guys pretty much control the show called our lives, and are usually large cap companies. An example is Shell petroleum.
Secondary oil companies usually work with the primary. They make their profits through storage and distribution of oil and its derivatives, research and development, engineering and technicals, energy trading, landscaping & surveying. They range from small to mid cap. An example is Tengasco Inc.

1 petroleum barrel = 42 gallons

Measurement and Conversion Center (http://www.convertit.com/Go/ConvertIt/Measurement/Units.ASP?Letter=P)

Most oil companies have very long term contracts like 15, 20, 30 years with the production companies who are most times the same companies under a different name. At the same time people who own the land that is leased get the same contract amount year after year.

The only change occurs when there is an override that is if your land produces x amount as contracted for say $30 per barrel, and the demand increases and you are willing to sell more...then you can charge market price or renegotiate the price.

So, when the gas price goes up - the producer (not the land owner) and the distributor make the money as to what the market can bear since it costs almost the same to refine the crude oil...the market price is artificially set by OPEC or a cartel.

My local gas station owner said, even though his long contract with supplier helps him to sell gas cheaper, he is legally bound by law to sell basically the same price as the big companies like Shell, BP and Exxon.