The cost of oil

The cost of oil

What you see at the petrol pump is the finished product of a very long journey, and one where lots of cost gets added. We take a look at the journey.

What is barrel of crude oil?
One barrel of crude oil is the measurement unit for the stuff that comes out of the well. One barrel is 42 US gallons or 158.9 litres.

How much does oil cost at the well head?
The cost of sucking oil out of the earth, however, varies depending on the location of the oil well, but in West Asia, it costs $15-20 per barrel.

What about refining costs?
As a percentage of the price the oil marketing companies pay, the number has come down. This currently averages around $5 per barrel globally though it is difficult to approximate numbers since refineries offset costs through sales of 'associate' petroleum products. However, for complex crudes obtained through tar sands, refining costs could top $15 per barrel.

And the final price?
here is the fun part, the central and state governments make more money from the sale of petroleum products every time the price of India's crude basket rises. For example, in Delhi, the government takes over 50 per cent of the price you pay in taxes-23 for every litre of petrol sold at petrol pumps. So while the oil companies bleed and you curse at rising prices, the finance ministers in North Block and various state capitals keep themselves busy counting their rising revenues.

What is Indian crude basket?
This refers to the price that Indian refineries pay for imported crude and is the average of Middle Eastern Heavy crude as well as Brent light in an approximate 50-40 ratio. India imports around 75 per cent of its annual crude oil needs for 2.5 million barrels a day. the Indian crude basket is on average $10-145 lower than the spot price, including delivery cost.

The Finance Ministry levies custom duty of 5 per cent on imported crude. Finance Minister has ruled out a cut in this duty. Though Brunei is pitching for a cut in duties on crude imported from there.

What happens at the refinery?
Crude oil contains a host of hydrocarbons of different molecular structures, not all of which can be used for motor spirit-petrol, diesel, kerosene, aviation turbine fuel. On average, only 19.5 gallons of crude per barrel can be used as motor spirit. However, as refining has become more of an art, mega refineries like Reliance's Jamnagar refinery can distill even more products out of crude, from petrochemicals for plastics, asphalt for roads, sulphuric acid, lubricants, paraffin and tar. very little crude is actually wasted nowdays.

World's most competitive companies

The United States tops the 2008 IMD World Competivenes yearbook (WCY). India has suffered a drop in its ranking.

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India has been placed 29th in a list of 55 economies assessed for competitiveness by the IMD, a leading business school based in Lausanne, Switzerland. This represents a loss of two positions from last year. Within the emerging economy space, India has been rated below Singapore (2), Hong Kong (3), Taiwan(13), China (17), Malaysia (19) and even Estonia (23) and Chile (26). However, it has been adjudged more competitive than south Korea (31), Brazil (43), Russia (47), Mexico (50), Indonesia (51), Argentina (52) and South Africa (53).