Gas Profit Guzzlers

Hurricane Katrina shocked already-tight markets for crude oil and gasoline. It reduced oil production in the Gulf of Mexico and caused the shutdown of nearby refineries, crimping supplies of crude oil and gasoline. Traders on the New York Mercantile Exchange responded by bidding up prices for both commodities.

That influencedoil sellers and buyers who negotiate prices in an informal spot market conducted by phone and instant computer messaging. Producers cut deals with refiners to sell oil at a higher cost, pegged to the rising prices on the exchange.

For a company like Exxon, producing a barrel of oil from an existing well costs about $20, according to analysts. When the selling price rises above that, the increase is almost all profit, they said. After Katrina bore down on the Gulf Coast, the price of oil set a new high, approaching $70.

Refiners processing the oil into gasoline faced lucrative market conditions. They may have had to pay the producers more for the oil, but they were able to sell their gasoline for higher prices as a result of the short supply and the spike on the mercantile exchange. In their view, the increases were justified because the market dictated that their final product -- gasoline -- had risen in value.

Refiners, particularly those with most of their facilities outside the path of Katrina, cashed in. Analysts predicted a windfall for companies such as Philadelphia-based Sunoco Inc., which continued operating normally during the hurricane.

After gasoline leaves refineries, the profit margin becomes narrower, even when prices are high. Many motorists direct their anger at gas station owners when the higher market prices for oil and gasoline show up at the pump. But the bulk of the increases at the pump typically is not making station owners rich, analysts said.

Who sets the price at the pump depends on who owns the station. At stations owned by big oil companies, prices are based on local supply and demand and what the companies think customers will be willing to pay.

Other stations may bear the name of a big oil company but be owned locally, in which case the owner often pays a non-negotiable price for the gasoline and determines on his own how much to charge customers. Some of these owners in the Washington area say they typically charge 10 cents to 20 cents more than the price they pay for gasoline, though the amount can vary depending on competition. They say they generally do not make more money with high prices.

Station owners complain that credit card companies are benefiting from higher pump prices. Many of those companies charge a percentage fee to the stations based on the customer's total charge. So as customers' bills rise, so do the credit card companies' fees.

Station owners say that as prices have risen, more people are using credit cards.

"It's a huge amount of money to process a transaction," said Eric Schmitz, an Exxon station owner in Tysons Corner. "It's horrible."

In all, the companies that distribute, market and sell gasoline to the public took about 18 cents on each gallon of gas when the average price hit a peak of $3.07 a gallon on Sept. 5 in an Energy Department survey, analysts estimated. A year ago, they took 17 cents of each gallon, according to Energy Department data.

When prices rise quickly, as they did after Katrina, the refineries make a larger share of the profit because they immediately pass along price increases to their buyers. But gasoline suppliers and station owners typically move more slowly in passing along price increases, limiting their profit.

Conversely, as more gasoline supplies came on the market following Katrina, the prices charged by refiners for their gasoline dropped rapidly. But gas suppliers and station owners did not pass those reduced prices along as quickly, a typical pricing pattern that allows them to make up for reduced profit margins when prices were rising, analysts said.

"On the way up, one guy is making money," said Michael Burdette, an analyst with the Energy Department's Energy Information Administration. "On the way down, the other guy is."