How Do We Calculate Oil/Fuel Price

[CPOCSM]

Got this off the defence intranet from one of the discussion forums:

From the Cheaper Petrol Party

How do we calculate the Oil / Petrol price?
We use the "Average" price for Unleaded Fuel in Sydney, based on the fuelwatch website from MotorMouth.
(Put your mouse over the city and this will bring up the average, highest and lowest price.) The website is updated throughout the day.

We use the lowest price per barrel from the Bloomberg Energy website, also updated throughout the day. There are three prices listed, all about the same. We use the lowest for our calculations.

We use the exchange rate AU dollar against the US dollar again based on the Bloomberg Benchmark Currency Rates and again this is updated throughout the day.

The calculation is: Cost of 1 barrel of crude in US dollars divided by 159 litres = cost of 1 litre of crude in US dollars.
Apply (divide by) the exchange rate -> cost of 1 litre of Crude in AU dollars.

Example: Crude oil is US$ $121.80 per barrel. Divide by 159 => 0.7660 US dollars per litre.
Exchange rate = $0.9398 US cents for 1 AU dollar => 0.8151 AU dollars per litre.

So if the price quoted on TV, Radio or Bloomberg is $121.80 per barrel, then that is equivalent to 81.51 (Australian) cents per litre. So why are we paying 153.000 cents? Who pockets the difference?

Who Gets What out of our $1.53
1 litre of petrol consists of:
38.143 cents in excise
13.915 cents GST
81.51 cents Crude oil (based on today's price and today's exchange rate)
1.2 cents for the service station (Note: The credit card companies get more)

That is a total of 52.05 cents direct tax + 82.71 cent in raw product and service station margin, making a total of 134.77 cents

Who gets the other 18.23 cents per litre? (see BBC news in side panel.)
18.23 cents per litre might not sound all that much, but multiply that by the estimated 20 billion litres of petrol used per year in Australia, and you are looking at a gross margin of 3.65 billion dollars.
Add to this the margin on the sale of diesel (another 17 billion litres).


FAQ
If the oil companies raise the cost of fuel by 1 cent per litre at the pump, what would their profit increase be for that day?
In Australia the combined fuel companies sell about 20 billion liters of petrol per year. On average, this would be about 54.8 Million Litres per day. (That’s an average, on “cheap days” they would sell more, on “expensive days” less.)
Assuming they sell 54.8 million litres and they receive one more cent per litre they would receive an extra $548,000. However that is not clear profit. The Government, through the GST, gets 10% of that; about $50,000. ($49,818 to be exact, the $548,000 includes 10% GST) Additionally the company has to pay tax. At 30% that would be another almost $150,000 to the government. (30% of $548,000-$49,818 = $149,455).
Therefore, in round figures; an increase of 1 cent will give the oil companies an extra $350,000 but the government gets an extra $200,000.
As you can see from this, there is no incentive for the government to reduce the cost of fuel. In fact the government has a vested interest in keeping fuel prices high. The government can order inquiries, appoint a “petrol commissioner” and make all the right noises, but at the end of the day, the more expensive fuel is, the more money the government receives.

What are heavy crude and light crude?
Light crude is defined as having a high specific gravity. This classification of oil is easier to pump, transport and refine into high value products like petrol, diesel and jet fuel. Because of this, it tends to be more expensive

Heavy Crude usually contain high concentrations of sulfur and several metals, particularly nickel and vanadium, and high amount of wax. These are the properties that make them difficult to pump out of the ground or through a pipeline and interfere with refining. These properties also present serious environmental challenges. Heavy oil can be broken into the smaller petrol molecules, through the use of a "catalytic cracker", but this process uses energy and the resulting petrol is thus more expensive. That cost is offset by the cheaper cost per barrel of the heavy crude.

What are "sweet" and "sour" Crude?
Sweet Crude has small amounts of sulfur (mainly hydrogen sulfide H2S) (.5% or less) and carbon dioxide, and is used primarily in petrol. Sulfur does damage to the equipment when refining and does damage to the environment (and your car's engine) if not removed. If the percentage exceeds .5% it is classified as sour. Because of the costs involved in removing the sulfur, sour oil tends to be cheaper than sweet oil.

Why do we use the lowest price of the 3 benchmarks for our calculations?
Australian refineries are capable of refining heavy crude. Most Asian refineries are not. Australia produces its own crude oil, but it is a light sweet crude. It is valuable, so we export it and import the less expensive heavy crude. Heavy crude, like Dubai Fateh, is about US$ 5 per barrel less expensive than Brent or WTI.
We should be quoting the heavy crude price, but because they are not regularly published, we use the cheapest price of the ones that are quoted just to be on the safe side.

Why is the price quoted on radio and television different to that quoted on Bloomberg?
There are about 160 different Crude Oils on the market. Some are heavier, they have longer Carbon-Hydrogen chains and are more difficult to refine into petrol, some are lighter and easier to refine. Some contain very little Sulfur, others contain a lot. The quality and weight of the crude oil makes a difference to the price. The prices quoted on radio and TV depend on which "crude" they refer to.

The benchmarks most frequently quoted are:
WTI (West Texas intermediate) crude oil at a reference sales point in Cushing, Oklahoma. This oil is of very high quality and is excellent for refining a larger portion of gasoline. It is a “light” crude oil, and it contains only about 0.24 percent of sulfur (making it a “sweet” crude oil)
Brent, (or rather Brent Blend) is a combination of crude oil from 15 different oil fields in the Brent and Ninian systems, located in the North Sea. It is still classified as a "light" crude oil, but not as "light" as WTI. It contains about 0.37 percent of sulfur (making it a “sweet” crude oil, but again slightly less “sweet” than WTI).
Dubai Fateh - Heavy Crude.
Some others are: Alaska Crude - Heavy Crude; Venezuela Orinoco Oil Belt - Heavy Crude; Greater Burgan, Kuwait - Very Light and Light Crude; Athabasca Oil Sands - Alberta, Canada - Heavy Crude.

What is the tax on petrol?
There are many taxes on petrol (and fuel in general).
The most easily identified are:
Excise = 38.143 cents per liter (both on petrol and diesel)
GST = 10% on the sell price.

Doesn't that mean we are paying GST on the excise, in other words, aren't we paying a tax on a tax?
Yes.

What other taxes are there on petrol?
There are the more 'hidden' taxes:
Royalties -- Australia is rich in coal, gas and oil. When the oil companies take the oil out of the ground they pay a royalty (tax) to the government. The oil companies pass that tax on to the consumer; us.
And of course when the (oil and transport) companies make a profit, they pay company tax, which is past on to the consumer; us.

Hang on, doesn't that mean we are paying GST on the royalties and on the tax companies pay, in other words; a tax on a tax?
Yes.


A bit of light reading for the end of the week...

Hooroo