A Barrel of Oil

[Elbmek]

Petrol prices here in the UK have falen back below a £ a litre for the first time in ages, my local garage is quick to put prices up, but not down. This got me thinking, so bear with me:

A Sheikh knocks out a barrel of oil at, say, $40. This finds its way to the storage tanks then onto a tanker. This barrel (at $40) sails half way around the world to land at Milford Haven. The price is now $50 for transport costs (for arguements sake). Then it goes to the refinery where it is processed into petrol, price is now $80 (if you are Shell ) It comes out of the refinery and makes its way to the forecourt and is sold, costs covered for £1 a litre (again an example).

Then OPEC announces a price hyke of 50% and oil coming out of the ground now costs $60. The garage down the road puts up his prices when the $40 barrel is still in his tanks, and the $60 barrel has yet to leave Saudi Oilrabia! Petrol is now £1.10p and the garage is making all the profit as tax on that $40 barrel is already paid.

Now the $60 barrel has arrived at the forecourt and the garage bungs his prices up to £1.20; he is still quids in!!

Then we have a price cut. But does the garage put his prices down at the same speed he puts them up - does he hell! I had to wait 3 weeks from the plea from Gordon Brown that price cuts should be passed onto the customer.

And another thing that bugs me is the .9p on the end of the price - do they think we are stupid enough to believe 95.9p a litre is actually 95p??

[dave lukins]

Mike's oil prices

And all the time the fat cats are getting fatter. I see on todays news that they have made record profits. Brown has no intention of cutting fuel tax and is reticent in making the Utilities Co's cut their extortionate prices as well. As long as he fills up the Coffers it matters not where it comes from

[gunnut]

Petrol prices here in the UK have falen back below a £ a litre for the first time in ages, my local garage is quick to put prices up, but not down. This got me thinking, so bear with me:

A Sheikh knocks out a barrel of oil at, say, $40. This finds its way to the storage tanks then onto a tanker. This barrel (at $40) sails half way around the world to land at Milford Haven. The price is now $50 for transport costs (for arguements sake). Then it goes to the refinery where it is processed into petrol, price is now $80 (if you are Shell ) It comes out of the refinery and makes its way to the forecourt and is sold, costs covered for £1 a litre (again an example).

Then OPEC announces a price hyke of 50% and oil coming out of the ground now costs $60. The garage down the road puts up his prices when the $40 barrel is still in his tanks, and the $60 barrel has yet to leave Saudi Oilrabia! Petrol is now £1.10p and the garage is making all the profit as tax on that $40 barrel is already paid.

Now the $60 barrel has arrived at the forecourt and the garage bungs his prices up to £1.20; he is still quids in!!

Then we have a price cut. But does the garage put his prices down at the same speed he puts them up - does he hell! I had to wait 3 weeks from the plea from Gordon Brown that price cuts should be passed onto the customer.

And another thing that bugs me is the .9p on the end of the price - do they think we are stupid enough to believe 95.9p a litre is actually 95p??

There are some factual errors in your assumption.

1. OPEC doesn't set the price. Only quantity. The price is determined on the commodities exchange.

2. Refiners (in the US) makes 5% margin. I would imagine similar margin in the UK

3. Oil companies make 8% margin. Again, I would imagine it's the same in UK.

4. The biggest "fat cat" getting rich off this oil thing is the government. What's the tax rate on petrol in the UK? What did the government do to deserve this huge margin? Did it pull it out of the ground? Did it transport it? Did it refine it? Did it put the thing in your tank?

[antimony]

There are some factual errors in your assumption.

1. OPEC doesn't set the price. Only quantity. The price is determined on the commodities exchange.

2. Refiners (in the US) makes 5% margin. I would imagine similar margin in the UK

3. Oil companies make 8% margin. Again, I would imagine it's the same in UK.

4. The biggest "fat cat" getting rich off this oil thing is the government. What's the tax rate on petrol in the UK? What did the government do to deserve this huge margin? Did it pull it out of the ground? Did it transport it? Did it refine it? Did it put the thing in your tank?

What is the margin for the folks who pull it out and send it to the refiners?

[dave lukins]

What's the tax rate on petrol in the UK?

Between 57 and 64%

http://www.abd.org.uk/taxtable.htm

[gunnut]

What is the margin for the folks who pull it out and send it to the refiners?

That I'm not sure. It depends on where the oil is pulled from. I've heard that it's as low as $4 a barrel in Saudi Arabia and somewhere around $20 a barrel in Iran. The price might be higher in North Seas and Gulf of Mexico since you need drilling platforms.

[gunnut]

Between 57 and 64%

http://www.abd.org.uk/taxtable.htm

Holy crap!

I pay about 25% here in California. The number varies because the federal gas tax is a flat number rather than percentage.

[antimony]

That I'm not sure. It depends on where the oil is pulled from. I've heard that it's as low as $4 a barrel in Saudi Arabia and somewhere around $20 a barrel in Iran. The price might be higher in North Seas and Gulf of Mexico since you need drilling platforms.

That sounds like a margin between 6% to 30% on the Crude, based on current prices.

On the prices that we saw early this year that would have been much, much

Guess that is where the money goes...

[gunnut]

That sounds like a margin between 6% to 30% on the Crude, based on current prices.

On the prices that we saw early this year that would have been much, much

Guess that is where the money goes...

Mostly to foreign governments who own the land and the oil.

Besides, they don't set the price. They set the quantity. Buyers set the price.

[Shek]

Mostly to foreign governments who own the land and the oil.

Besides, they don't set the price. They set the quantity. Buyers set the price.

Actually, both buyers and sellers set the price. That's why it's called equilibrium ;)

Marshall has the analogy right - supply and demand are like the two blades of a scissors - you need both to be able to cut; likewise, you need both buyers and sellers to be able to get a price.