Shouldn’t the cost of a barrel of oil be solely the price it takes to extract it?

You don’t see people investing in microwaves, and the number of people who invest in microwaves is not a huge factor of the price of a microwave.

6 Responses to “Shouldn’t the cost of a barrel of oil be solely the price it takes to extract it?”

  1. B.R.NAGARAJA B Says:

    Extraction of oil is only a crude part. To make it fit for use as fuel passes several stages. It all cost to cost of barrel of oil. In addition to this you have to take it into account the cost of transportation of oil to its place of use. It depends on distance of place from its extraction to to destination. That is the reason barrel of oil priced differently in different areas.

  2. gwen r Says:

    It all depends on who you ask. Most people charge what they can instead of what they have to.

  3. meg Says:

    NO. even if there was an unlimited supply the price would be the highest production cost of the oil sold on the market, The cost of oil on the market now varies between $5 and about $60 a barrel, and if the price falls below $60 the most expensive production will cease. In addition because we are running out of oil, producers are maximizing their long term profits, and knowing the prices will increase in the future are not pumping the maximum rate now, even if their cost are much less than the price. Microwaves can be made at approximately the same cost by all manufactures, and in any quantity demanded when the price is at the cost of production.

  4. squeakyweal Says:

    Even without considering the processing and refining necessary to convert crude oil into usable fuels, you’ve got to consider the cost of transporting the oil from the source to the refinery, whether by pipeline, which requires substantial investment in infrastructure and political capital, or ship, rail or truck, which themselves are consumers of energy, most likely petroleum products.

    The concept of "value added" begins the moment that oil leaves the ground, and there are many incremental increases in its value and cost extending right up to the wage of the clerk at the gas station counter and the indirect cost of capital investment and ancillary services such as the mortgage on the station down to the cost of the squeegee that may be hanging in a bucket by the pump.

  5. Gabriel Says:

    Yes and no. The investors have recently been a huge problem, artificially driving the cost of oil much higher than it actually was (allowed by the Bush administration). The bubble recently burst and was the beginning of the economic woes our market has been going through. Now oil is back down to a much more reasonable $68 / barrel. Part of the reason oil prices have dropped so substantially also reflects the market as a whole. Their price will rebound soon.

    The other factor that drives oil price is demand. It really isn’t all of the SUV’s in the US that is increasing demand, India and China are advancing extremely quickly and their demand for oil is impacting the global market.

    As for microwaves. Most of us already have one. We don’t need to buy a new one every week or so, although with the price of a microwave, I’d rather buy one of those instead of fill up my tank. That makes the demand side of the equation fairly low. Secondarily, microwaves are made by more than one company so there is competition. Oil is primarily supplied by members of OPEC. OPEC has created an oligopoly and they meet regularly to set how much oil they will pump to artificially restrict supply. In the US that would be illegal, it’s exactly the same as price fixing. Because we need their product so badly there isn’t a lot we can do to stop them.

    We need to start pumping our own oil and work quickly to find a realistic alternate source of fuel.

  6. balloon buster Says:

    Ever been on a drilling rig? Or in a refinery? It is mean nasty dirty and especially dangerous work. If you want people to do that kind of work, you will pay them for their effort and risk or they will find something else to do. Those who become successful and go on into the exploration and production business will also demand a premium or else they will find something else to do and somewhere else to put their money. See how it works?

    Know how to tell how long a person has been in the oil patch? Subtract the number of fingers he has left from ten.