"Formula for success: rise early, work hard, strike oil"
- J. Paul Getty
As I write this, the price of a gallon of regular gas at the gas station down the street from my office is $2.07 a gallon. Remember 2008? Back then, there were gas lines at the station near my home that were a mile long and premium unleaded was selling for over $4.80 a gallon. Why the swing? And why isn't gasoline becoming ever more expensive?
If you'd like to know a little more about the oil business and a few of its pricing levers, read on.
Every industry has a few things that really help us understand it. When looking at the oil industry, here are the top 5:
Like it or not, oil is energy and that energy is driving the world. 1st world economies have populaces that are buying more cars than every before. Emerging economies are lifting themselves from poverty with tools that require energy....which requires oil. And oil is an incredibly capital intensive business. Research = capital. Extraction = capital. Refining = Capital. Distribution = Capital. Because of the high fixed costs, profits swing wildly. At times, profits can be very poor. At other times, they can be incredibly high.
Welcome to capitalism.
Entrepreneur, financial guy, husband and father of two great kids.