22 FEATURE Fuel prices
Oil has made monsters of us all. No, really, think about it: with all the turmoil in the Middle East,
I’m sure most of us instinctively sympathised with the protestors in Tunisia, Egypt, Bahrain and Libya, but that sympathy was quickly replaced by thoughts of how the upheaval will affect the price of oil and, in turn, what we’re going to have to pay at the petrol pump. See? Monsters, the lot of us. Petrol prices are an emotive issue, especially in the UK, where lorry drivers blockaded depots in 2000 as the price of
Nat aut eosanda Ectium seditat fugitatur Ximori omnimus fjt, tur.
a litre of petrol rose above £1. It’s insidious, messing with our sense of perspective – not only about the part petrol plays in our lives (are those same lorry drivers making a stand to save the NHS? No, thought not) but also our historical perspective of those prices. Protesting about £1 a litre seems absurd now that we’re paying (at the time of writing) 133.51p a litre for petrol and 138.71p for diesel, an increase of 20% in just one year. As with most things in the modern world, the combination of
factors determining the price of petrol is complicated. Let’s start with the raw material, the oil itself. Extraction is a costly business, especially if you factor in the difficulty of actually finding the (black) stuff. Take the example of Mukluk Island in the Beaufort Sea, north of Alaska back in 1983. After ‘oil stains’ were found in the area, 12 companies spent nearly $2bn drilling for oil – to no avail. The well turned out to be a dry hole with no oil. If a company does strike oil successfully, there are not
only the costs of the rig (drilling companies can charge the oil companies up to $600,000 a day), but also payments for contractors, welders, engineers, supervisors, mud loggers, geologists and scientists; the cost of clearing all the dues with the landowner (or territorial payments if the rig is offshore), the payment of taxes, lawyers’ fees and permits to drill the well; plus the operational costs, including three shifts of personnel per day, with all the necessary facilities and amenities for the crew (accommodation, food and drink, transport, etc). That all adds up to a lot of money. And of course once the oil is out from the ground, it’s
not cheap to transport it from the wells – often situated in inhospitable places around the globe – to the refineries, where more costs are incurred converting crude oil into petrol and diesel (not forgetting kerosene for jet aircraft, heating oil and other products such as paraffin wax). Of course the price of crude oil is not only determined by
the costs involved in extracting it, refining it and getting it to the market. There are also the laws of supply and demand to consider, with the effects of foreign currency fluctuations as an added kicker (barrels of crude are priced in dollars). The price we hear in the news headlines tends to be for Brent Crude, which is the oil sourced from the North Sea and is used to price two-thirds of the world’s internationally traded crude oil supplies. Crude is traded in barrels, which contain 42 US gallons, or 158.98 litres – although today most oil is transported via pipelines rather than actual barrels. In times of geopolitical tension, as we’ve seen recently,
the combination of factors determining the price of petrol is complicated
driving | April / May 2011
As with most things in the modern world,
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