Follow by Email

Total Pageviews

Thursday, September 22, 2011

The Price of Oil Today

Oil is around $85.92 per barrel. This works out to $1.56 per gallon of oil. The general rule of thumb is to add one dollar to get into the neighborhood of what the cost of gas should be at the pump. Based on that logic, we should only be paying $2.56 per gallon. But, we are far from that, aren’t we? I am paying $3.60, roughly, per gallon. Let’s take this price and back track it with the Rule of Thumb math we just went over. First, subtract a dollar to get $2.60 now multiply this by 55 for the price of one barrel of oil. This gets us $143 for a barrel of oil. Why is it that, if this general rule holds, we are paying $143 per barrel prices when the market is $85.92 dollars per barrel? Shouldn’t we be paying $2.56 or so?

A number of factors go into breaking down the cost of each barrel, taxes being the big one for the government and feeding the industry beast is the other portion. I found an article at which broke the costs down by percentages, and this seems to hold true on other sites.

68% is the cost of the oil
13% is refining
12% is taxes
7% is marketing and distribution

With the current price of $85.92 per barrel, the actual cost of the oil is $58.42. The cost of refining that is $11.17. The taxes, give to Caesar what is Caesars’, comes out to be $10.31. The marketing and distribution portion of this comes to $6.01 per barrel.

It seems that someone is getting a raw deal! Seriously, where is that extra one dollar per gallon going? –The Federal Trade Commission wants to know that, too. The FTC appears to feel that Price Gouging is afoot. The view that there is anti-competition activity or a plot to boost profits is one that, for now, is held mostly by democrats, according to The FTC is also going to look at refinery outputs and maintenance schedules. The International Energy Agency disagrees with pricing gouging, rather it feels that supply and demand is the answer for the cost of gas.

Won’t our oil fields keep us going for 60 to 100 years? That is what some emails would have us believe. That we could run ourselves completely on US oil and natural gas for several decades on our potential is not in question, what the realistic numbers are is the question. information shows there is enough oil available in the Bakken (North Dakota, South Dakota, and Montana) Area to answer the US demand for oil for one year. It did not, as I recall, cover the oil fields in Texas, the Gulf of Mexico, our continental shelves, and so forth. We have roughly 112 billion barrels of untapped oil potential and 656 trillion cubic feet of natural gas. This could keep us going for another 100 to 120 years; provided we do not refine our methods of using the fuel and develop other sources of driving our country.

The Snopes article leans towards a timeline of 20 years to have the technology available to extract all of the oil reserves we currently have. I believe that we should start extracting and refining now so that we can stay on top of or ahead of the technologic curve to which snopes refers.

We, as a nation, import just over 50% of the oil we use. The overall amount of petroleum used in America has gone down over the last five years. So, the demand is dropping and the market responds by increasing prices to offset the profit loss. This market opinion is what the IEA believes is going on. Based on that theory, I bought a 2005 Prius and have put more than 160,000 thousand miles on it.  Due to the market supply/demand factor I burn less fuel per mile, my demand has decreased while the supply remains the unchanged. More people are using less fuel for driving and home heating and industry. So, if the demand decreases in the system and supply remains unchanged, shouldn’t the price drop? It seems to me that the FTC is onto something.

I wish that I knew who was getting that missing one extra dollar per gallon. With 4,304.533 barrels imported into the US in 2010 that is a good amount of money I would like to get my fingers on.

The question, sadly, remains unanswered as to why we are paying $3.56 per gallon when, based on the actual cost, we should be paying $2.56 per gallon.

No comments:

Post a Comment