Why do gas company profits go up when the price of oil goes up?

I don't think gas is all that expensive. It's just a price we pay attention to and it fluctuates more than other expenses. But it really bothers me that companies like Exxon make greater profits when they have to pay more for oil.

Well, the main reason is that many gas companies are vertically integrated. This means that besides selling gasoline to the filling stations that you buy it from, they have a variety of other buisnesses. Companies like Exxon also refine oil into various components, are hired to pump oil from known reserves, explore for new reserves, consult with large oil producing nations/companies on the most efficent way to extract the oil, and of course pump from their own oil fields.

Thus, their refining and wholesale buisnesses is likely not growing as rapidly as in the past, and potentially making less.

This however is more than offest by the rapidly rasing profits of their other lines of buisness.

Many companies that use comodies hedge their future supplies by buying contracts. This gives them the option to buy their supplies at a fixed price. This results in less volatility for the company, but they pay a premium. If the actual price is less when they actually need to purchase the oil, they will allow the option to expire and purchase at the market rate. They will have then lost the premium paid for the contact. On the other hand, if prices rise dramatically, they will be able to purchase at the price stipulated in the option, potentially earning them exceptionally high rewards.

The ability to purchase these sorts of options is avaliable to anyone. If you belive the price of oil will be significatly different at some point in the future you can purchase these commodity contracts as well.

the answer is markup. For example if gas is $10/barrel and I mark it up 30% it costs a consumer $13/barrel. So if oil costs jump to $20, my consumers now pay $26/barrel. I'll still sell the same amount of barrels in a year, but with a higher unit margin, so my profits are up.

simplistic example I know.

Gas is a necessity and therefore the more money it costs the more profit they'll make.

Because they are oil companies, silly. Gas is one of the products they sell, but they also sell oil on the wholesale market.

One word answer to your question --- G-R-E-E-D

MONEY MONEY MONEY MONEY MONEY

Money don't get everything it's true
What it don't get, I can't use
Now give me money
That's what I want
That's what I want, yeah
That's what I want, wah

gas companies use the price of oil as an excuse to jack up the price of gas since gas comes from oil. they also use oil spills, holidays, terrorists and just about anything else to jack up those prices.

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