Another arrow shot at the petroleum industry. While the arrows are somewhat deserved, better facts need to be flushed out in order to generate the right kind of public policy.
1) First, oil companies do not sell crude oil to service stations. That oil has to be refined into useful products, of which vehicle fuels are a big component.
2) Refineries are usually owned by the big oil companies. They get their feedstock from their own oil wells. But they often buy oil from smaller oil producers. If there is any element of entrepreneurship in this supply chain, it is these smaller oil companies. Sometimes there is an intermediary pipeline that acts as a broker/transport agent for the oil producers and refineries.
3) The margins for fuel at the service station are extremely low. There is a good reason for this: many customers will drive across a busy highway to get a little discount from a different service station rather than take the more convenient station.
4) Fuel draws in the customers who then buy the store's confections. Gross profit margins are 50% to 100%. These pay the wages and store operations.
5) There is still a profit in fuel, but the store won't see it. There is a whole whack of business analysis as a refinery distributes fuel to its stations. Stations are always sending data back to the logistical engineers, like competitor's prices and fuel supplies. These analysts then set the prices. Prices are often set by whether a fuel truck is able to make a "drop" in the next day. If not, the price stays high and the station earns a higher fuel margin and does not run out of fuel. If a drop is coming soon, then the price stays competitive. It's really a big chess game as logistical engineers match their fuel truck routes with the stations needing gas. BTW, a fuel truck probably costs $100 to $150 an hour to run. That is also a cost to be considered in their big analysis.
6) From my Canadian experience, there are no "mom and pop" service stations any more. Most stores have managers who are part of the corporate hierarchy. Some store might be franchised, but these franchisees only follow company orders in regards to the fuel sales to somehow earn profits at the confections. I would wager that the franchisees have to follow a lot rules about confection sales as well. If a manager or franchisee cannot earn sufficient profit, he/she is fired. That person has no ownership of the building or pumps. This is not a real business, in my opinion.
7) From the producer side, oil companies (big or small) don't always earn a profit from every barrel of oil they sell. While they should always have a selling price that is more than the cost to bring the oil to surface, they sometimes do not factor in the investment to build that oil well--because they need the cash flow to keep their company solvent and operating. In these cases, they are patiently waiting for better prices. But they won't be drilling any new wells in these times.
