View Single Post
Old 28-01-2009, 03:00 PM   #41
winkle
Regular Member
 
Join Date: Apr 2007
Posts: 153
Default

Read this in Melbourne's Herald Sun today:

Terry McCrann

January 28, 2009 12:00am
A READER asks why the price of petrol is $1.20 when crude oil is at a record low of $US38 a barrel.

Well, setting aside the fact that $US38 is not exactly a 'record low' - oil was below $US20 just a few years ago; it used to be $US2 before OPEC; and for much of the 20th century it was in cents a barrel - here's the answer.

Actually two answers. The short answer is that no business is normally in the business of paying customers to take their product. That's a pretty sure fire way of not being in business.

The reader said petrol should be at 75 a litre. That would require the oil company to sell it at anything up to 30-40 less for every litre than it cost to get it to the pump.

And so to the longer answer. There are 159 litres of oil in a barrel. Strictly speaking, this gives you only 'about' 80 litres of petrol.

The rest will be jet fuel, heating oil and a whole range of chemicals. The exact mix depends on the type of oil - from sweet light to very heavy - and the fractionation processing that turns oil into all those products.

But it all does produce revenue and so for the purposes of calculation we'll assume it does all turn into petrol.

So, first you have to translate the $US38 into $A54 a barrel; and that gives you a base cost of 34 a litre (54 divided by 159). So why isn't petrol a lot cheaper?

Enter Kevin Rudd, John Howard, Peter Costello, and a long line of prime ministers and treasurers before them. A three-letter word: tax. Two actually. The excise and the GST.

The excise is fixed at 38 a litre. At least we can thank Mr Howard for that. Before he fixed it, in a moment of sheer political panic in 2001, it went up every six months in line with inflation.

The GST is of course 10 per cent on what ever is the final price at the pump, before you add the GST.

Just taking the 38 excise and adding it to the 34 base oil price would generate a 7.2 GST and so a pump price of 79 a litre.

That is already above the 75 our reader said the price 'should' be. And that would assume the oil moved magically and instantly from the well in the Middle East and elsewhere to being petrol at all the pumps around Australia.

Just like cash appears in ATMs at no cost and no process. But that is another, equally depressing story.

In reality there is the little matter of first the transportation of the oil to the refinery; the investment in the refinery to process it; the cost of doing the processing; the transportation to the station; and then the selling of the petrol.

That all costs several cents a litre. We can be thankful for the efficiency of our oil industry that it doesn't cost a lot more.

Now our reader and depressingly far too many others believe that all this should be done out of the goodness of all those industry hearts. But everyone in the chain actually is entitled, indeed needs, to earn a - I hesitate to utter a dirty word - 'profit'.

So at the very minimum we are talking 15 a litre to cover all the costs and very low profits - both to the oil refiners and the petrol stations.

Which boosts that base price from 72 a litre to 87. Plus GST of 9 making 96. Much more than the 'should be' 75, but lower than the claimed $1.20.

A smaller rip-off but still a rip-off?

Now to our reader's basic figures. A more reasonable oil price is $US45 a barrel, not $US38.

And although petrol at some places might have been $1.20, the confirmed evidence is that in recent weeks the average has not been above $1.10.

The $US45 a barrel figure gives you a real 'should be' price at the pump of something higher than $1.07 a litre.

That's 44 base plus 38 excise plus 15 costs and profit plus 10 GST. If anything, higher than the actual price paid by the motorist.

As anyone who knows the realities of petrol pricing will tell you, on average you get it cheaper than any reasonable calculation of 'should be'.

http://www.news.com.au/heraldsun/sto...-36281,00.html
winkle is offline   Reply With Quote