Oil refineries are recording unprecedented profits as the price of gas soars.
One reason for the spike in prices is because refineries have an expected profit margin, also known as a crack spread. It's basically an amount they expect to make off each gallon of gas.
Houston's Phillips 66, the largest U.S. independent refiner, reported earnings from refining up fivefold in the fourth quarter of 2012.
For San Antonio, Texas-based Valero, net income was up 22 fold. Those are a couple of refineries that have seen a large increase recently in profit. Despite those profits prices this year are still going up.
I sat down with Peter Krueger, an oil wholesaler with Nevada Petroleum for my weekend show Face the State and asked him if those profit margins are a bit unrealistic.
"Well, you have to look at how do you raise a profit. You are more efficient, you do certain things, like reduce production and raise gas prices because the wholesaler has to pay more for the same gallon of gas, so therefore, the retailer pays more."
Krueger also said nothing has ever proven that refiners, wholesalers and retailers are price fixing.
Many analysts have batted around the idea of a federal cap on how much one can charge for a gallon of gas.
I asked Krueger if that idea would work.
"Absolutely not. When, if ever, has government interfered with a free enterprise system that has worked? It's been demonstrated over the years, that there's been no price gouging."
To watch the entire interview, tune into Face the State this weekend on Channel 2. It airs Saturday at 4:30am and 3:30pm. It also airs Sunday at 6:30am.
Written by Chris Ciarlo
