Cost to Oil Companies for Domestic Versus Foreign Oil and Refined Gas
September 2, 2008
FedUpEditor: A thought came to me the other day that people might like to know about the domestic oil issue. Does your economist have numbers on roughly how much a barrel of oil produced by a foreign source costs as opposed to one that’s domestically produced? Is it possible that is it cheaper to buy foreign oil that is already out of the ground versus having to drill for it.
The other question was that we are now buying gasoline that has been refined by foreign countries. Which countries? I expect from our other discussions that Canada and Mexico are big contributors. And is gasoline cheaper to buy from foreign sources than it is when it’s refined here? If it’s not why would oil companies do that? Because of our limited oil refining capacity?
Jane Van Ryan, API: First, oil is priced by the global market, and the cost of drilling for the oil has virtually nothing to do with the price. Like corn and soybeans, oil is a commodity, and the amount of money spent on producing it is not factored in when the commodity is sold. This also means the oil’s point of origin has little or nothing to do with the price.
There are, however, different prices for different grades of oil, and light sweet (low sulfur) crudes generally have a higher value. The Energy Information Administration website has a chart that shows the varying grades of oil.
The debate over whether to continue to purchase oil from foreign countries focuses on security rather than price. The real question is whether it is smart – or safe – to continue to depend on unstable nations for energy. Also, drilling for more of our own oil would create jobs here, invest money in America’s economy, and send fewer dollars overseas.
Regarding imported gasoline, the US does import gasoline from Canada, the US Virgin Islands and Europe for a variety of reasons. The gasoline market is quite competitive, and there are foreign refiners who produce gasoline that meet US specifications and who can offer it for sale at competitive prices. It’s also important to consider the existing distribution networks and logistics. For example, New England receives some of its gasoline by barge through harbors, but Atlanta receives most of its fuel via pipeline from the Gulf Coast.
Charleston harbor receives gasoline from the Carribbean, but other areas of the US receive shipments of gasoline via pipeline from Canada. Location and infrastructure are some of the factors that are part of the decision-making process when individual fuel providers determine where to obtain fuel. They are business men and women who look for the best value, the highest quality, and the best way to deliver fuel to retail service stations.
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