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Quite a good article


V8 Freak

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Shows why all this lobbying of supermarkets and petrol retailers doesn’t drive prices down… They just can’t afford it…

The price is primarily derived from a fictional cost of oil (not actual cost of production) driven by speculation and then the Government taking what is rightfully theirs!

http://www.bbc.co.uk/news/business-15462923

Neil

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Not a very searching article though is it; typed up from an oil company press release perhaps?

The 30% odd quoted as the 'cost of oil' will include not only the cost of extraction and transport to the refinery, but also the oil company profits. I think we all know that the retailer does not make much on the sale of petrol but the likes of BP, Shell etc. still make huge amounts of profit.

Chris

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Cost of extraction is a very variable number and changes depending on the wholesale price the oil companies can get.

This isn't the companies fiddling the books. Certain areas and fields have a start to finish cost of getting oil out, this includes exploration, production drilling, setting up inferstructure to get the oil out and then transporting to market. If they think the oil is there but the cost of getting it to market doesn't allow a "reasonable" profit then they will leave it in plac till the price rises or sometimes the technology used to extract it improves to reduce the cost. In the North Sea most ot the big deposits are being produced but there are numerous small deposits that don't justify the huge up front cost of building a platform to extract the oil, in many cases these are now being produced by floating production vessels, which will produce from a field for the life of the field then be towed to the next field hence reducing cost by decreasing initial outlay and then decommissioning costs.

There is then the risk factors, a single well in the North Sea will cost a minimum of £15 million, I have drilled wells with costs over £60 million which then found nothing and had to be abandoned. In other parts of the world the geological risk of not finding what you want maybe lower but the political risk higher, a lot of companies lost a lot of production and equipment in Libya (although they may get some of it back later) and thats not considering the risk to personel, a friend of mine had to leave everything behind and drive across the desert to Egypt to get out, he has only just managed to get his passport back from Tripoli (they hold your passport in Tripoli whilst you work in the oil fields with a "desert pass".

The oil companies need to be making a level of profit to offset the potential losses they may face, in BP's case they lost a lot of money in the states due to failure of hired equipment resulting in a big spill.

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