Deinonychus antirrhopus

Yeah, you might be right, but I don't think so.

I never understood the relationship between the price of crude oil and refinery profits. It seems like Exxon Mobil and the like make more money when the price of a barrel of crude goes up.

For example, right this second, the price of crude is high because of world demand, especially in China. But the US oil companies don't sell gasoline in China. So why are their profits at record levels?

Gasoline prices have not risen because of US demand. Gas companies are raising prices because their inputs have increased in price. So why are they making so much money? They must have raised prices more than their costs increased. But why didn't they do this when they were losing money, when the price of oil was low (1998, for example).

This is why there is so much misinformation about gasoline prices. It's complicated!

For example, right this second, the price of crude is high because of world demand, especially in China. But the US oil companies don't sell gasoline in China. So why are their profits at record levels?

Well if the demand is going up in one part of the world, we'd expect to see prices going up in other parts of the world.

Also, you are confusing gasoline prices with crude oil prices. While there is a connection it isn't clear that the causality has to run in reverse (i.e., higher gasoline prices drive up oil prices). For example, if China is sucking up more oil than previously then that would be an outward (or rightward) shift in demand. If supply is not also moving around this would raise the price of oil. If the market for oil is worldwide, then the increased demand in china would have an impact in other countries.

I think most of the 'instant explanations' of the market prices moving, in most markets, are ad hoc rationalizations of 'noise' in what are, in the short run, quite irrational buying and selling decisions among traders and speculators.

Notice that some sizable fraction of such allegedly connected market moving factors and markets' reactions are null, as in 'despite xyz move, the markets shrugged off the bad news and... (didn't behave as one might expect).'

SOMETIMES the alleged triggering event does move a market as one might expect (as markets are surprisingly vulnerable to knee-jerk selling or buying sprees), and other times, it is instead a post hoc, ergo propter hoc fallacious 'explanation.'

The 10-year Treasury bond market's recent odd behavior (dropping from the mid-4%s to about 3.9% in the face of 4 or 5 Fed interest rate increases, until the recent spike up to the high 4%s, on just slightly more of the same) shows how the alleged explanatory factors, aren't (always).

So let me get this straight. David Winning actually did get the cause right since he was somehow able to discern the irrational actions of many buyers in the market. Have I got it right? My question is why isn't Mr. Winning a billionaire? After all if he can figure out the irrational tendencies of the markets he should be able to make huge amounts of money.

I'm not explaining myself well.

Here is what I don't get. The price of crude goes up because of something that is happening in another market, not the US market. Thus, Exxon Mobil's costs go up. Why are they then making record profits?

Obviously they raised gas prices more than their costs increased. You could speculate that they make x% profit on a gallon of gas, and that x% translated into more profit the higher gas prices go. But I just don't get why that is so. Why should they limit themselves to x%? It would seem to me that they could go higher than x% when crude prices are low, and might accept less than x% when crude prices are high.

Here is what I don't get. The price of crude goes up because of something that is happening in another market, not the US market. Thus, Exxon Mobil's costs go up.

I'm not sure what you mean by costs. If you mean that the increased demand in say China pushes up the price for Exxon Mobil then okay, if you mean something else I don't see the connection here.

Why are they then making record profits?

One answer is that you aren't dealing with a competitive industry. I think it is also a mistake to assume that things scale linearly.

By costs I mean the cost of a barrel of crude. Crude is the input, refined products like gasoline and other stuff is the output.

The cost of the input went up. In every other industry out there, that would result in less profit, not more.

One explanation is that Exxon Mobil is integrated. They own businesses that produce crude. But there are other businesses out there (Vallero?) that just do refining and gasoline marketing, and they don't seem to be doing too badly. What gives?

I don't agree with the every other industry. Remember this isn't a competitive industry, but more of an oligopoly. The price dynamics are not necessarily the same.

That is an unsatisfying answer. Is the oil industry less competitive than the auto industry? Is it less competitve than any large user of commodities? All comodity prices are going through the roof, but only gasoline prices are rising a similar amount.

GM and Ford are no less ologopolies than Exxon and BP. I don't see car prices rising 20% in the last 3 months. What gives?

I'm generally curious here.

Only an idiot would care whether you think someone's an economic idiot.