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Please see the
Learning
Center - Oil and Gas Basics
for an explanation.
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According
to the American Automobile Association's 2005 transportation cost study, the
average annual cost of owning a car is 51.6 cents per mile if you drive 15,000
miles per year or $7,740. The cost of gasoline is 8.2 cents per mile.
Gasoline is made by processing or refining
crude oil. The cost of gasoline is shown in the following table:
Cost
Component |
Dollars
per Barrel |
Cents
per Gallon |
Percent
of Total Cost |
|
Crude
Oil Price |
$
28.78 |
68.52 |
46% |
|
Transportation
to Refinery |
$
2.50 |
5.95 |
4% |
|
Refining
Costs |
$
4.00 |
9.52 |
6% |
|
Transportation
to Market |
$
2.00 |
4.76 |
3% |
|
Marketing
Costs |
$
2.00 |
4.76 |
3% |
|
Refining
& Marketing Margins |
$
6.79 |
16.18 |
11% |
|
State
and Federal Taxes |
$
16.97 |
40.40 |
27% |
|
Pump
Price including Taxes |
$
63.04 |
150.10 |
100% |
The two largest cost components are crude oil
and taxes which comprise about 73% of gasoline price. In the United States
taxes include both a Federal and State tax. Both of these taxes are levied
as cents/gallon rather than as a percent of price. State taxes can vary
considerably depending on the need and philosophy of the local government. The
price of crude oil, which is 46% of pump price in our example, is a large
factor in determining pump prices and in causing prices to fluctuate. Please click on the following link to see a
graph
of the relationship between crude oil and gasoline prices:
Crude Oil and Gasoline Pump
Prices.
Although
many consumers believe that oil companies are gouging the public, the reality is
that profits in refining and marketing have been pretty bad as illustrated in
the following plot:
[Use control
+ click to view full-size image]
Please check the following sites for
more information on gasoline prices:
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Winter heating bills
are expected to decrease 14% this winter from an average of $1,101 to $945
according to the Energy Information Administration (EIA).
Please
see
Residential Natural Gas Prices: What Consumers Should Know on the EIA
web site for more information.
Please
see the following graphs for trends in those factors that affect natural gas prices:
Please check the following sites for
additional information on winter natural gas prices:
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OPEC
is the acronym for the
Organization
of Petroleum Exporting
Countries. It is composed of the following
twelve members: Algeria, Angola (joined on January 1, 2007), Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar,
Saudi Arabia, United Arab Emirates and Venezuela. The organization
was founded in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Its
membership is limited to "any other country with a substantial net export
of crude petroleum, which has fundamentally similar interests to those of member
countries.
The
demographics of member countries are similar yet, in some ways, very
different.
 |
Members
are from around the world - Algeria, Libya and Nigeria (Africa);
Indonesia (Far East); Venezuela (South America) and Iran, Iraq,
Kuwait, Qatar, Saudi Arabia and United Arab Emirates (Middle East) |
|
|
The
Moslem belief is the dominant religion and Arabic is the principle
language |
|
|
Population
ranges from 700 thousand (Qatar) to 216 million (Indonesia) |
|
|
Oil
reserves range from 0.4% (Qatar) to 25.5% (Saudi Arabia) of world
reserves |
|
|
Gas
reserves range from 0.9% (Libya) to 15.7% (Iran) of world reserves |
OPEC holds 78%
of oil and provide 41% of supply or 60% of internationally traded oil.
OPEC holds more than 43% of world’s natural gas and produces 16% of
supply. OPEC members seek prices that would provide for a
healthy world economy, minimal incentives for alternative fuels, and
sufficient cash flow to invest in new production facilities.
[Use control
+ click to view full-size image]
OPEC seeks to control world oil
prices, but this is a very difficult undertaking. Even though OPEC
provides 41% of the world's oil, it is subject to variables that it cannot
control which will influence prices. These variables include economic
growth, weather, political situations and new technologies. OPEC attempts
to influence prices by adjusting the production of individual members through
output quotas. OPEC tries to anticipate future world oil demand and define
quotas that will meet the demand and provide for prices within a range of $22 to
$28/B.
Please click on the following link to see a graph
of the current OPEC
Basket Crude Oil Prices.
If demand exceeds their forecasts,
prices can rise resulting in lower economic growth and protests from consuming
country governments. If demand is less than anticipated, prices can drop
resulting in lower incentives to find oil resources, reduced interests in energy
conservation and increased use of fossil fuels contributing to global climate
change. While it might seem strange, oil producers and environmentalists
would both favor higher prices --- producers obtain profits to help find more
oil and grow their companies and environmentalists achieve incentives to reduce
fossil fuel consumption and invest in alternate energy.
It is also naive to view OPEC as a
homogeneous family where all countries share the same goals and
strategies. Although the role of the oil industry in each member country
varies, OPEC members depend on oil exports to provide for income for the overall
economy. That means that these countries use oil income to build roads,
hospitals and schools. This money is also used to develop other businesses
and industries. Some of this money is also used to support internal and
external political agendas and the lifestyles of governing officials and
families. These member companies debate these production changes at periodic
meetings and arrive at production quotas. These quotas are only targets
and OPEC has no methodology to force member countries to comply with them.
Overproduction and creative accounting have often been used to allow member
countries to raise production.
OPEC's
desire to control prices is also driven by a desire to have a stable
income for their country. How would you like to have your income
change up and down each month. What if your income was halved one
year and then doubled the next. It would be hard to plan on new
purchases and if it got too low meet basic expenses like food and
shelter. That is OPEC's problem and reason that it wants to
control prices.
[Use control
+ click to view full-size image]
(Source: Energy Information Administration,
OPEC
Revenues Fact Sheet)
In OPEC's forty years of existence
they have generally not been able to control prices. However, OPEC
has had some success the past two years and may be optimistic about their future
efforts.
Please check the following sites to
learn more about OPEC:
5. Are
we running out of oil and gas?
Please see the
Learning
Center - Are We Running Out of Oil & Gas?
for an explanation.
6. How
will oil and gas supply and demand change over the next twenty years?
Please see the
Learning
Center - Energy Forecasts for information.
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Updated
08/14/07
Copyright
2000
PetroStrategies, Inc.
All rights reserved
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