We’ve all heard that oil is at $100 per barrel. So how much gasoline is actually in a barrel of oil? How does the price of crude become the price at the pump?
I am no expert on this topic. but I did a little digging around. Here is what I found is made from a barrel of oil:
| Product | Gallons | Recent Pre-tax Price | Value at Retail |
| Gasoline | 19.5 | $2.65 | $51.68 |
| Distillate fuel oil | 9.2 | $3.02 | $27.78 |
| Jet fuel | 4.1 | $2.84 | $11.64 |
| Residual fuel oil | 2.3 | $3.46 | $7.96 |
| Liquified gases | 1.9 | $1.48 | $2.81 |
| Kerosene | 0.2 | $3.78 | $0.76 |
| Still gas | 1.9 | $1.50 | $10.05 |
| Petroleum coke | 1.8 | ||
| Asphalt | 1.3 | ||
| Feedstocks | 1.2 | ||
| Lubricants | 0.5 | ||
| TOTAL | 43.9 | $112.68 |
Sources: product breakdown is from API, prices from EIA for Feb 25, 2008, except jet fuel which is from IATA. The miscellaneous products are not sold on a per-gallon basis, so I guessed at the $1.50 price.
What does this tell us? That $100 barrel of oil has $112 worth of “stuff” in it. These are retail prices, which already include the producer’s, refinery’s and retailer’s profits. So why doesn’t it add up?
Again, I am no expert, but here is my guess. (1) The products are not actually selling for the prices I found. For example, much jet fuel is sold on long-term contracts that surely cost less than $2.84 per gallon. (2) Crude oil that is used in refineries does not really cost $100 – again oil is being delivered on long-term contracts at prices struck some time ago.
If I am correct, the chickens will come to roost when these long-term contracts expire – over the next 6-18 months. Prices will jump up as various refiners and airlines, electric utilities and other big oil buyers renegotiate. Unless, of course, oil prices drop between now and then. How likely is that?
