An Exxon gas station sign in Burbank, Calif.
An Exxon gas station sign in Burbank, Calif. - 
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KAI RYSSDAL: When the Federal Reserve cut rates yesterday you got the feeling they did it grudgingly. Almost because it was expected or something. The statement they issued along with the cut explained why. They're still worried about inflation. And it appears with good cause. The Commerce Department's number on consumer spending this morning was double expectations, but only because food and energy prices are where they are.

One of the beneficiaries of those higher energy prices reported profits this morning. Exxon Mobil cleared a tidy $10.9 billion last quarter. But, in the way only Wall Street can, traders saw that as bad news. Exxon shares fell more than 3.5 percent today. Because even though Big Oil's prospects look good at the well head, they've mostly evaporated by the time consumers pull up to the corner gas station. Our senior business correspondent Bob Moon explains.

BOB MOON: In a way, Exxon Mobil and other big gasoline producers are paying the price every time you put the nozzle back on the pump, rip off your receipt, and find yourself grumbling that, at that price, they can keep their blankety-blank gas-o-line.

Refineries are getting the message. While their raw material costs 70 percent more than a year ago, pump prices are up just 33 percent. Tom Kloza is chief analyst for the Oil Price Information Service:

TOM KLOZA: Once you leave the well head -- and this is the difference between this year and other years -- it gets miserable as you move through the system. Refiners are making what would be regarded as very poor margins compared to 2003 to 2007.

They're struggling to pass on their costs. Stephen Schork heads the research firm Energy Market Intelligence:

STEPHEN SCHORK: They can only sell what the market is willing to bear, and the market in gasoline and diesel fuel simply is not willing to bear the price that Exxon and so forth have to pay for the crude oil. And hence, contraction in these profit margins.

Just this week, North America's biggest refiner, Valero, blamed the squeeze for a 77 percent profit plunge. The refiners are charging more to make up the difference -- never mind that that violates the law of supply and demand. Schork says crude oil is essentially backed up in the U.S. pipelines. And analyst Tom Kloza expects consumers to keep pushing back.

TOM KLOZA: The tipping point has always been $3.25. In places where we're above $3.50 and $3.75 right now, I think we're going to see some real demand destruction out there among the population.

I'm Bob Moon for Marketplace.