Economics of supply and demand. OK I think I understand now.?

Question

Crude oil goes up and the price at the pump goes up. Very simple. The question is; "how does "windfall" profit find a way into the picture"? It's coming to me slow. The price of crude goes up $1.00 a barrel so Exxon raises the price of gas accordingly up a $1.00 a gallon. Seems fair.

Answer 1

Oh the sarcasm is appreciated on a Monday afternoon. Glad you're getting it.

Answer 2

Lets assume I buy a gallon of oil at $100, now the price of oil on the open market goes up to $110. I have just received a windfall of $10 per barrel.  I didn't add any value by refining the oil or anything. The oil I had in storage simply is more valuable because the open market price is higher.

When determining the cost for my gasoline if I use $110 for the cost of my oil, instead of the actual amount that I paid for it, that is a windfall profit.

The oil company has provided no economic useful function to "earn" the profit.