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Tuesday, March 30, 2004

Milk or gas - which is the loss leader?


Click here to e-mail Peter Bronson
Some Americans are more scared of BP than OBL. A poll last week found that many fear rising gas prices more than Osama Bin Laden's terrorism.

Another poll will soon show that the same people inhale brain-damaging gas fumes while filling up.

Here's another amazing true fact: "Believe it or not, there are a lot of people who think we pump it right out of the ground as gasoline," said Linda Casey of Marathon Ashland Petroleum LLC in Findlay, Ohio.

Yes, all of us rely on Shell, Marathon, Exxon and Mobil every day. We get gas pains if it goes up a nickel. Everything we eat and buy floats on a river of crude. Our economic engine would seize up without oil. Yet we are blissfully ignorant about it.

The media are not much help. When gas prices go up, the typical report quotes Joe Angry, who thinks the president has a dial in his office to turn down prices. But we seldom hear from the people who produce it.

"The idea that big oil companies are gouging us for obscene profits doesn't fit," Casey said. "In fact, we're selling at a loss."

Marathon, for example, makes more on milk than gas. It figures. A gallon of milk costs a lot more. "For the last several years, our profits are from retail convenience stores, not gas," Casey said. "That's why the places that have only have gas pumps are going out of business."

Marathon has 1,700 Speedway convenience stores with gas pumps. And gas is a lot more expensive to produce than milk.

You don't have to drill dozens of cows to find one with milk. But oil companies spend millions on dry wells for each oil well they find. Then they pump it and pipeline it to a refinery.

A gallon of milk is a gallon of milk. But each 42-gallon barrel of oil produces only 24 gallons of gas - about one SUV fill-up. The gas is piped to a terminal, then loaded onto trucks and delivered to gas stations. From well to pump takes 40 days.

Each retailer has its own secret additives, but they all buy the same gas at the same price. It's not a conspiracy when prices go up overnight. That's an increase in bulk commodity prices, Casey said.

The latest price is $1.11 per gallon. Add 40-60 cents for local, state and federal taxes. Add another dime for delivery and pipeline costs. Add 15 cents for retailer overhead. And that's what I paid at the pump last week: $1.76.

But it will probably go up soon. OPEC is likely to cut production this week because A.) prices are dipping below $35 a barrel, or, B.) the Saudis want to sugar our economic gas tank and defeat President Bush for backing Israel, or, C.) evil big oil is strangling poor American workers again.

Politicians know better, but most still choose C. It's easier than explaining the truth.

"People think of gas as a local issue, but it's global," Casey said. Surging economies in India and China, for example, have boosted their demand for oil imports by 20 percent, driving up prices for U.S. imports that make up more than half of what we burn.

"What other product can you drive by and see the price out on a big board?" Casey asks. "Everybody has to have it, and they think it's the oil companies' responsibility to provide it cheap."

If it only took a phone call to find these things out, why are politicians and the press still making "Big Oil" out to be the Osama of American industry?

I don't know. But next time I stop for a fill-up, I won't get scared or mad. I will be tankful.

---

E-mail pbronson@enquirer.com or call 768-8301.




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