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Industry CEO explains gas, oil pricing
Modesto Bee


June 08, 2008

MODESTO, Calif. -- Carl Boyett has worked in the oil and gas industry for 38 years, and today serves as Modesto, Calif.-based Boyett Petroleum's chief executive officer.

Boyett joined the company in 1970, eight years after his parents bought a Richfield oil distributorship and changed its name to Boyett Petroleum. The company distributes gasoline to stations and sells it directly.

Q: What's going on with oil and gas prices right now, and why do they keep climbing?

A: From the 1970s to the '90s, OPEC and the oil companies had a lot to do with the price of oil, and now it's gotten away from them. They couldn't lower the price right now if they wanted to.

Oil companies use a commodity market to sell products, but I don't think they control anymore what's going on. When I started, you would have one, maybe two price changes a year, and they would be anywhere from three-tenths to five-tenths of a percent. Now, gas stations have 12- to 15-cents-a-gallon changes in a day.

What's happened is that the investment banks are working with the hedge funds and the pensions and university endowments, and a few years ago, they were told to stay away from stocks.

The recommendation was to put money into commodities like oil because the demand would be on the rise. That's where the money comes from, and it keeps coming in because everyone thinks it's still on the rise.

Q: This sounds like what happened with real estate?

A: Yes. And like real estate, this market is going to turn, and the last ones in are going to be hurt the worst.

Saudi Arabia wants the price to be $60, $65 a barrel, and a few years ago Exxon thought $40 a barrel would be fair. But the middle class is growing so fast in China and India, and that's creating demand. The thing is, no one is running out of anything. There's still supply.

Q: So what happens when the investors realize that supply can meet demand?

A: Well, the question is whether these pensions can take a big loss. When these pension funds go broke, the public is going to be asked to pick up the tab for them.

Q: This isn't strictly related to supply and demand, then?

A: It's happening with all commodities, everything from minerals to wheat, soybeans.

Q: But consumers don't realize that, right?

A: When prices go up a penny, our employees get blistered. And in many cases, for gas stations, gasoline is almost a loss leader. They want customers to buy the beef jerky and the cold drinks, and they make money that way.

Q: What else should consumers know about gas?

A: Well, one of the things we're working on is lowering fees for credit cards. I know that at some stations, because the price has gone up, 100 percent of the purchases are through credit cards, and those fees are really high.

Q: Is there concern in your industry that because prices are high, drivers are going to look for alternatives?

A: Hey, I think hybrids are great. But really, we're not drilling enough. To me, it's just criminal when you see what we could get out of Alaska. We're getting 700,000 barrels out of Alaska, and we could be getting 2 million barrels.

The one bright spot in all this is that the Gulf Coast hasn't been shut down in a while because of hurricanes. But you see all this talk about ethanol, and ethanol can't meet the 35 percent goal that the government talks about, not with corn.

Q: What about the impact oil prices are having on the rest of the economy?

A: We're very concerned. At these prices, it's not sustainable, and I'm not sure the whole economy doesn't blow up. That means less commuting ... all kinds of things.

Q: So what's going to happen with gas prices? It sounds like you think they have to come down.

A: I do think it's unsustainable, and it has to come down. But that's what I said last year, and it's gone higher. I didn't think the price could last at $2 a gallon. And I'm still not sure that it is going to last at that price.


E-mail Ben van der Meer at bvandermeer(at)
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