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#582072 Mon Nov 24 2014 10:02 AM
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Just something I've wondered about and don't understand.
I've heard it stated both on this site and somewhere else in life, that the stations/station owners don't make but a couple cents a gallon on gasoline sales. And that they make their money from the convenience store aspects of the locations/business.
First, is this true?
Second, if there is no money in Gasoline sales, how is it that the petroleum companies, Exxon-Mobil for example, are worth and make billions?
What am I missing?


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Yes it's true. Most gas stations are independently owned. They buy their gas from the big oil companies. So, how much they make is separate from what the oil companies make.


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Oil Companies make their money from the exploration, refining and the sales of the crude oil. Gasoline is only one of the many by products of crude oil that they sell.


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I also have heard that Steve, I believe about 20 years ago or more, it was probably true which is why companies pushed hard to sell their TBA products.
Update to todays pricing and although I can't say for sure about usa, I can assure you stations in canada are probably in the 20-50 cents a gallon margin. When one station is selling for 98 cents a litre and down the road its 1.08 a liter, someone is pocketing cash. That's a difference of 40 cents a gallon.


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I read or heard on the news a few years ago that the big oil companies only turned a 4% profit so those record profits were due to record volume.


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Lastgas is correct. Just yesterday I had dinner with a relative who is in the oil refining business in Texas. He explained that the oil companies make only 2cents per gallon but their tremendous profits come from the overall volumn that is sold. As far as your independent gas station owner, they make 5cents per gallon in most cases and their major profit comes from those that still have a back room and now the convenience store.
When I had a station back in the 60's we made 5cents then as well but had to hand out blue and green stamps AND we had gas wars

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I have a friend who owned a station and the profits were not from gas but all the other stuff, usually convenience store items.
However they said they lost a lot of their stock and cash due to employee pilfering and decided the effort was not worth it and sold the station.

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Same scenario with Movie theaters.
The price they pay to borrow the film from Hollywood is high,and ticket sales are almost always luckluster,so they're looking to really make the profit on the popcorn & refreshments and not ticket sales.


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I heard the parts and accessories at the Harley dealer made more profit than the bikes


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Most store owners have little to do with the base pricing of gas these days which is dictated by the bulk seller. Only larger chain operations are able to buy in volumes that allow them to dictate the base value somewhat. However, local independent stores can charge more and pocket whatever revenue from the difference.

Some stores will use gas as a break-even product in hopes of up-selling the customer other store items. Coffee and Soda fountain drinks are a high profit margin item.

As for the profit margins of oil companies. The truth is not so simple. Perhaps on gasoline, diesel, and fuel oil they make profit on volume, but the real profit is from all the products made from a single barrel of oil. Buy a quart of 10w30 oil today, dont' tell us it cost any more to make than it did 20 years ago. Natural gas is cheaper which allows the cracking of oil atoms into components so that part of the process is far cheaper. Look at my link below.

Breakdown basic of 42gal barrel of oil as of 2012...




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5¢ - 6¢ profit at stations is about average for Store Profit. (Supply/Demand big controlling factor on daily price)

"Big" Oil companies make their profits on "Crack Spread".**

Crude prices are pretty much set by OPEC and Wall Street.

Big oil companies are small players in crude "prices", even if they are producing.

** "Crack Spread"... Basically,

Value of Refined Product
- Cost of Crude
- Cost of Refining
= Profit / Loss

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Paul(Carolinaskies) what does this mean? "Natural gas is cheaper which allows the cracking of oil atoms into components so that part of the process is far cheaper."? I might be misunderstanding what your trying to say here. I'm curious, as I've always thought Natural gas was in pockets in the ground and didnt have any thing to do with the process of refining crude oil. I'm a dumb cement finisher and I'm just trying to learn something here.

Last edited by JimT; Tue Nov 25 2014 04:13 AM. Reason: spl
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JimT,

Chemistry 101. In distillation process heat is required to bring a liquid to the boiling point of specific components which can then be siphoned off for further processing.

In the oil distillation process natural gas is used to do this and possible more in the processing. There are two main types of oil, sweet and sour crude. It's easier to crack the first to produce good gas, while the latter takes more processing to achieve the same result. Much of the time we would either ship out our sour crude or process it only so far. Meaning that national gas supplies were used more on sweet crude and we had to import more of that sweet crude from overseas and Canada to meet domestic demand.

The US supplies and cost of natural gas having gone down considerably have allowed us to ramp up production to levels not seen in more than 50 years so we can crack that sour crude on home territory and create even more gas cheaply and not import more sweet crude.

So that's the rest of the story.

Last edited by carolinaskies; Tue Nov 25 2014 04:55 AM.



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Originally Posted By: Bbburke
Yes it's true. Most gas stations are independently owned. They buy their gas from the big oil companies. So, how much they make is separate from what the oil companies make.


Umm...not true. Most gas retail outlets are either owned by large jobbers or an oil company. The days of independent gas station ownership are long gone...(I'm not saying there isn't a pocket of them near where you live)

For oil companies it's about production, keeping the refineries humming. They learned in the eighties it was more productive to control the flow of petroleum from the ground to the pump. By eliminating the independent dealers, they could control the price of gas at the pump and therefore control the flow of petroleum. Which when you think of it makes sense. As an independent dealer, my pool average (cost averaging self serve and full serve profit margins per gallon) was around .20 The oil companies just didn't like a middle man making that much profit off of their product and restricting the flow of petroleum, which affects refinery output.

What is the profit margin now for a gallon of gas? Who knows for sure, I think it varies by market. Some markets are ultra competitive and others are soft. In my town, I'll bet the average profit per gallon is around .12 In the city next to us that is more competitive...maybe .06

Oil companies are amazing at squeezing profit out of everything they do....including the management of all the real estate they own. (buying, selling, modernizing...all for tax and accounting reasons)

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This thread brings back memories for me. I worked at my wife's uncle's Texaco station back in the mid 60's. A big day for pumping gas at that station was 1000 gals - average was usually around 750-800. Station was located in a small town in rural eastern Iowa with a population of 4800. During that period the owner, my wife's uncle made 5 cents a gallon on gas. Multiply that by the 1,000 gals and you have $50 - probably enough to pay the wages of 2 of the 4 guys that worked there. However, the station's business was booming. Similar to convenience stores today, the real dollars were in the extras - oil changes, brake jobs, muffler jobs and tire and battery sales. Here's another interesting tidbit - back in 1966 that small town supported no less than 15 gas stations. I can still name each one and remember their locations. Today the town is served by 6 stations. Only 2 of the original 15 are still standing and in operation today. Both independently owned and unaffiliated due to franchises being pulled many years ago. The other 4 are convenience operations.


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