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An investigation into the relationship of retail gas prices on oil company profitability

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  • George Ford

Abstract

In this article, we present several empirical procedures using publicly available data from the US Department of Energy (DOE), and the Securities and Exchange Commission (SEC) to examine the relationship of oil company gross profit margins to retail gas prices. This descriptive analysis indicates that the profit margins of the major integrated oil companies are lower, on average, during periods of extremely high gas and oil prices (and, in fact, are even lower than in times of extremely low gas and oil prices). Large oil companies are most profitable during periods of moderate gasoline prices. Smaller, vertically integrated oil companies and firms, primarily in the business of refining purchased crude oil, exhibit a consistently inverse relationship between profit margins and retail gas prices - as gas prices increase, these firms become less profitable. We find no evidence for the increase in the gross profit margins of oil companies during episodes of very high retail gasoline prices.

Suggested Citation

  • George Ford, 2011. "An investigation into the relationship of retail gas prices on oil company profitability," Applied Economics, Taylor & Francis Journals, vol. 43(27), pages 4033-4041.
    • Handle: RePEc:taf:applec:v:43:y:2011:i:27:p:4033-4041
    DOI: 10.1080/00036841003781486
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    References listed on IDEAS

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    1. James D. Hamilton, 2009. "Causes and Consequences of the Oil Shock of 2007-08," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(1 (Spring), pages 215-283.
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    Cited by:

    1. Asil Azimli, 2022. "Oil price risk and the cross‐section of stock returns in Turkey," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4105-4122, October.
    2. Samuel D. Barrows, 2018. "Are Oil Industry Mergers Becoming Less Profitable?," International Journal of Energy Economics and Policy, Econjournals, vol. 8(2), pages 31-38.
    3. Valadkhani, Abbas & Babacan, Alperhan, 2014. "Modelling how much extra motorists pay on the road? A cross-sectional study of profit margins of unleaded petrol in Australia," Energy Policy, Elsevier, vol. 69(C), pages 179-188.

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