Price Gouging at the Pumps

Today I was reading an article that was posted in March '07 by The New York Times.  In this article it talked about how oil companies are getting more oil out of old fields.  The article mentioned how much it cost per barrel to get it out of the ground, and like I said in a recent post that oil companies don't pay $70+ per barrel.  The article said that it costs $16 per barrel to pump it out.  Now everyone knows that turning oil into gas costs more so I did some research to find out how much more.  From each barrel of oil you can refine about 19.7 gallons of gas.  There are a lot more products you get from a barrel like jet fuel, diesel, heating oil, liquid petroleum gas (LPG) and other products.  But I'm dealing just with gas to run my car.  To get gas from the oil fields to the pump costs double the price of oil.  So in the case of getting the oil at $16 a barrel, this is from a field in California, to the pump costs $32 per barrel.  It's doubled because of taxes, marketing and transporting.  Without adding any profit to the price it would come to about $1.62 per gallon.  Most large oil companies own their own refinery so they don't really have to buy the oil on the open market.  But lets be fair and allow them to make a reasonable profit, say 20% profit per gallon of gas.  That brings the price to about $1.95 per gallon and they make extra profit from the diesel, heating oil, LPG and jet fuel.  So how can the oil company justify the price per gallon of gas?  I think it's pretty simple.  The oil field division sells the oil to the refining division at slightly below market value so it looks good on paper and the refining division sells the refined product at market value to the retail division, the retail division sells it to the public at the market value.  This may be a little confusing because it's all 1 company, but when you put it on paper separately it looks like each division is a separate company and that's how you can justify record profits.   The large oil companies make even more profit on Persian Gulf Oil because that only costs about $2.00 per barrel to pump out of the ground.  If the government really wanted to do something about the high price of gas and the record profits of big oil companies they really need to treat oil as a utility.  Meaning any price increase must be proposed to and agreed upon by the government.  Your electric company has to ask for a price increase, so does the phone company, why doesn't the oil companies?  Over the past 5-7 years the profits of oil companies have been going up by 100%+ year over year.  I was amazed the first year I saw Exxon-Mobile profit at 120% over the prior year and they did this for several years.  This year they are on pace to break last years record of $36+billion in profits.  The average business is lucky to make 10-20% profit over the prior year. Now I agree that my calculations for a price for a gallon of gas seems a little low, but if I did it the right way it would be even worse.  If I followed the calculations that were used in 2005 are like this:  53% oil, 19% refining, 9% distribution and marketing, 19% taxes.  In 2005 gas was going for $2.27 per gallon and a barrel of oil was going for $50.23 per barrel.  I suspect that gas prices will drop during the summer and not exceed $3.00 for long periods of time during the next year because oil companies know that the U.S. economy can't sustain that for long periods.  But they will get us use to paying $3 a gallon then they'll increase it slightly, maybe 2 cents per gallon until we get use to paying an average of $3.10-3.15.  Once the economy adjusts to that we'll never see gas below $3 a gallon.  Right now the breaking point is $3.00 per gallon for the U.S. economy but it will soon go higher.  You decide where the price gouging is coming from or if there is even any price manipulation going on.