Tuesday, October 19, 2010

Petroleum for How Much?

I was listening to a financial show on the radio a couple weeks ago. The guy who was on said if petroleum was not used as an "investment instrument", a barrel would cost about $10. I wondered about this, so I did a search and found this:

There are 42 gallons of oil in each barrel of oil. If the price of crude oil is $75 a barrel, the cost of the raw material required to produce a gallon of gasoline is $1.78. This figure does not include costs incurred to transport crude oil to a refinery, refine the oil into gasoline, transport the gasoline to distribution hubs or wholesalers, deliver the gasoline to retail locations or operate service stations.

This is an interesting paper that appears to show that "recoverable and unconventional sources" petroleum is much, much greater than "proven (their term) reserves". It also appears to debunk the claim that the Middle East holds 2/3 of all available petroleum. "Recoverable and unconventional sources" are not necessarily economically or technologically feasible to exploit...for now. I found the conclusion to be most illuminating.

I'm not sure I fully endorse this from CATO. But it's a worthwhile read as well.

From what I am seeing in these few articles, the price of oil is driven more by speculation and politics than by supply and demand.

1 comment:

Dad29 said...

Interesting item today from Tim Carney which cites LATimes article from 2005(??).,,

Seems that moving to ethanol or methanol blends "took out" small refineries--eliminated competition--and that's why Big Oil liked the ethanol game.

It was worth about 6 cents/gallon for Big Oil.