ISSUE: Gasoline prices
OUR VIEW: “Upstream” is where money is, blame belongs
Brab McCully comes from a family of oil men -- the ones who deliver your gas to the pumps, that is. He’s no friend of big oil, though.
McCully -- of Bamberg’s Brabham Oil Co., which owns the E-Z Shops convenience stores -- is tired of being blamed for higher gasoline prices. He hears it from consumers who believe he is making big money off the constantly fluctuating and often elevating prices at the pump.
With gasoline prices this Labor Day weekend averaging from 10 to 20 cents less than a year ago, some of the heat may be off, but McCully is spreading the message about where the money is going.
Addressing Orangeburg Rotarians this past week, McCully was anxious to get the gas monkey off his back.
First, there is the Organization of Petroleum Exporting Countries, known to all as OPEC. The cartel provides 40 percent of the world’s petroleum and has two-thirds of the world’s oil reserves.
OPEC is the ultimate example of collusion, McCully said. When higher prices are desired, production is cut.
Don’t forget the big oil companies, however. Consolidation of the majors has resulted in less competition and, using that word again, “collusion.”
Also on what is known as the upstream side of the oil business are refineries that turn crude into petroleum products.
If the present price of gas is figured at $2.50 a gallon, here’s the breakdown of where the money is going: The cost of crude oil accounts for 68 percent of the price per gallon at the pump. That’s $1.70 of the $2.50. Refining is another 13 percent, or 33 cents per gallon.
That leaves less than 50 cents per gallon for what McCully calls the downstream side of the business, where Brabham Oil operates and from which many longtime distributors (often called jobbers) have exited.
In fact, from 197 oil jobbers in South Carolina in 1995, today there are less than 100, McCully said.
These businesses have no allies in big oil. Whereas collusion is the order of the day upstream, it is outright illegal in the downstream. Jobbers cannot cooperate in deciding on what the cost will be at the pump. Competition keeps prices relatively stable and comparable.
But speculation in the trading pits for oil futures is another story, McCully said. The traders will drive up prices ahead of a big weekend, meaning American consumers pay more at the tail end of the downstream.
“It just makes me sick to see prices jump before a weekend,’’ McCully said, noting that he pays more in the same situation when picking up gas for delivery to his stations, even when that petroleum has long been in the ground-to-pump pipeline.
OPEC and big oil are making the money. “They’re not down here beating their brains out in the downstream.”
Of the 50 cents left in the downstream side of the price of a gallon of gas, McCully says 35 cents goes to taxes, 5 cents is for to distribution and marketing, 3 cents goes for trucking and up to 6 cents a gallon is paid by merchants in fees to credit card companies. That leaves about 1 cent per gallon. And sometimes, the merchant is selling gasoline at a loss, hoping to make money elsewhere from bringing in customers for other products or services.
The process outlined by McCully illustrates what is wrong with U.S. dependence on oil, particularly from places and people in the world that are not friendly to this country. McCully speaks with a great deal of frustration -- and as an American, businessman and consumer himself.
And his parting shot: Even if you drove to the refinery to get your gasoline, look how little you’d save.