Oil Eyes and Gas GaugesHow much, Where, How long?

Ronnie D. LipschutzPolitics Department

UC-Santa Cruz

I. How much does oil & gasoline cost?II. How much of the stuff do we use?III. Where does it come from?IV. How much is there?V. How much is left?VI. How much will we need?VII. What can we do?

I. How much does oil and gasoline cost?

The cost of a barrel in world markets is really set in commodities markets by traders’ estimates of what oil will be worth 30, 60, and 90 days in the future

How the price of oil is determined

The usual story is that “the market” sets the price.

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This depends on what they think supply and demand will look like—whether a disruption is likely or not.

The future price feeds back to today’s price, since you can always store a barrel until its value goes up.

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The production company pays $7.50/bbl for oil from its fields

The refining company pays $65/bbl for oil from the production arm of the company

How Glutco Oil Ltd. prices its product

The marketing company pays $80/bbl for the refined product

The consumer pays $126/bbl at the pump

This is the futures price

II. How much of the stuff do we use?

III. Where does it come from?

IV. How much is there?

IV. How much is left?

V. How much will we need?

VI. What can we do?

•Transportation uses 13 million barrels per day = 4.75 billion barrels/year

•Increasing average auto fuel mileage from 25 mpg to 50 mpg could save about 1.2 billion barrels per year, or about $75 billion per year in imports

•A $0.50 per gallon fuel tax would generate about $100 billion/yr.

If you must have a car, get a hybrid

•A subsidy of $10,000 for each hybrid could enable purchase of 10 million new cars every year

•Assume average mileage of 25 miles per gallon. If hybrids get 50 mpg and are driven 15,000 miles/yr., they save 300 gallons per year (about 7.15 barrels).

•Each year, that amounts to 3 billion gallons or 70 million barrels = $4.5 billion

•By the end of 10 years, 100 million cars would save 700 million barrels or $20 billion at the pump, and $45 billion per year in imports