Crude Oil, Gasoline and Politics-- and a Moose | Editorial 2013

Parsing the facts; it's not that complicated

At the bottom of this editorial is an article forwarded to me by my dad. He asked the question, "Should the US be exporting crude oil?"
The issue of exporting crude, and/or refining it for resale and domestic consumption is not unlike talking wholesale and retail.

Art.

Let’s compare the wholesale/retail process using metal products. I can talk about this subject at length and with some authority because I deal in metal products from artists and craftsman locally.

My company, Specialized Media Merchandise buys metal art from two different craftsmen in The Northwest in order to resell it at large. They get the metal for free or cheap because lately the supply of raw metal has increased drastically. Raw materiel is a term that metal workers use to describe both new metal and acquired scrap metal. These together make up the category called raw material for artists and craftsmen.

One of these metal artists looks for cast off scrap compressor and fuel tanks as they are made of both lower grade iron and higher grade stainless steel; his two mediums of choice. He can get the stainless steel tanks for extremely cheap; sometimes free. The pieces he cuts out of them and turns into ornamental art, like a particularly interesting three dimensional shark that is displayed in his shop, (I do not have authority to display a picture of his 3D shark for this article, thus the moose) gets him about $150, which we can sell near the $250 price point.

Retail is all about buying low and selling high. This concept is universal, obviously.

Out of one small scrap tank, he can get two or three of these 3D sharks that hang from people’s decks and back porch eaves. So, the motivation for him is great to acquire and horde raw materials in order to turn them into metal art at hundreds and thousands of percent markup.

Then, one looks at market demand in order to figure market strategy. This artist can sell every single piece that he produces in a matter of days, with people standing in line asking for more. So, market demand is high with no end in site. Therefore, market strategy is simple; produce and sell locally. Do not sell wholesale; sell retail.

Oil.

One barrel of crude oil costs American companies $33.76 to lift out of the ground and put in a barrel ready for shipping and refining. This is figured from 2009 dollars because currently it is very involved to get that figure for today. Many factors that are used to determine cost per barrel change many times a year, so the only stable figures are a few years old, but those proportions don’t change as much as the other end of the money chain; the selling price; so the math is still pretty solid.

The selling price for a barrel of crude yesterday, 10/12/2013 was $102.02 for WTI crude, and $111.28 for Brent crude; an average of $106.65 per barrel.

Cost $33.76
Sell $106.65

That's only the crude, crude figures, (pun intended); we have yet to delve into retail breakdowns that include the multiple pieces of the retail pie that a 42 gallon barrel of crude oil fall into: gasoline, kerosene, diesel, asphalt and chemical reagents used to make plastics and pharmaceuticals (Wiki). That's a $72.89 profit per barrel before it's even broken down into it's various wholesale elements for refining into retail products, which is the real frosting on the cake.

In May of 2013, the volume of oil produced by American companies topped 7 million barrels (wait for it) per day. And, remember that this is not all out production mode. America's "free trade" is severely hampered by politics. But 7,000,000 x $72.89 = $510,230,000 per day, before cracking into usable product.

So, the next step in figuring market strategy is looking at the need factor. The US had over 240 million cars in 2012. That’s more than registered drivers. This figure is fantastic and quite phenomenal. All of those gas tanks need fuel, and we fill them up or drop $20 worth in every week whether we use all of that up or not. And this does not even account for municipal buses and trucks, and commercial trucks and equipment, and trains which more than doubles the number of gas tanks, and the size of those tanks is always much larger than a passenger car or truck.

The National Automobile Dealers Association and the US Dept of statistics has determined that the number of just passenger vehicles alone increases at a rate of up to 5.88% annually; this larger figure was recorded back in 1999, but never falls below 3.69% every year.

"Market strategy is simple; make as much refined fuel for resale at home."

Market strategy is simple; make as much refined fuel for resale at home. Doing this nets the oil refineries the highest profit in the shortest amount of time and is virtually guaranteed into the foreseeable future and most likely beyond. As a matter of fact, realistic published reports that try to predict when the US will run out of oil resources in the ground are all bogus because new giant caches are discovered every year. There is more oil in the ground ready for refining now, than all of the oil ever used to date.

So, why sell wholesale at all? For the answer, one must look outside of the standard wholesale/retail market plan and ask our government that question. The US Government has controlled the acquisition and resale of crude oil from day one. And their control gains purchase every decade. And, every day that the free market is blocked from selling their product costs American citizens millions in lost revenue in the form of jobs and lost US taxes.

Obviously, there is a minute amount (comparatively) of product that must be reserved for the Federal government for tactical and emergency application, but that can be acquired at retail prices. There is no reason for the US government to get a discount on fuel.

It’s political. It’s not complicated like the main stream journalists and leftist politicians would have us believe, but it is definitely political.

Editor

references;
Wikipedia
OPEC
US Dept of Statistics
National Automobile Dealers Association

Robert S.

___

A fact about the U.S. "shale oil boom" that would shock most Americans

Thursday, October 10, 2013
From Matt Badiali, editor, S&A Resource Report:Today, I went on Fox Business News to discuss exporting crude oil...

And while I didn't have a chance to fully flesh out my ideas on TV, I would like to make my points with you. Because I do think there is a benefit to not exporting oil and gas today.

The background is simple, in the 1970s, the Arab Oil Embargo scared the U.S. into blocking oil exports. We were running out and the supply was in the hands of our enemies.

Fast forward to today. Oil production is back up to 1992 levels and rising. For some reason, folks are fired up about exporting oil.

This is one of my favorite subjects right now. When there was a big price gap between Brent and WTI crude oil this summer, refiners pulled an end run around oil export rules. They refined the crude just enough to call it "refined product" then put it on ships out of here.

In other words, the law is toothless. I'm all for an open market, so scrap the law. However, I'm not sure exporting crude oil is a good idea. Here's what I mean:

According to the Energy Information Administration (EIA) we export about 3.4 million barrels of refined product per day. That's right… we already export 3.4 million barrels of oil products every day already.

That's up from less than about 1 million barrels per day in 2006. To put that in perspective, our production boom added about 2.4 million barrels per day over that same period. So we are effectively exporting all the new production anyway.

That leads me to three points against exporting crude oil.

1. There is no reason to export crude oil. We already export "refined products" around the world. That's good for our economy. We keep good, high paying refining jobs here in the U.S. We keep the best petroleum engineers here and develop the best engineering programs at U.S. universities.

2. We don't produce all the oil we need yet. Why would we export oil if we are still importing oil from OPEC (3.8 million barrels per day)? We need to ramp our own production up and keep it home. There is no need to export crude oil abroad.

3. If we keep the oil here and export the refined products, there is a value chain created in the U.S. before we export the refined product. That means some of that profit stays here (in the form of wages, taxes, investment in infrastructure, etc...). The value of the export isn't in the raw product, it is in the finished goods. That's why the law is fine with me.

I'm sure that there are excellent reasons to open up crude oil exports. I’m really on the fence. But I hope that my points give you something to think about.

So, What do you think?