Does anyone understand the oil business?

[county worker]

When we drill for oil off of our coasts, the oil does not stay in the area. Who owns the oil? Isn't oil sold on the world market no matter where it comes from?

We drill off the coast of Santa Barbara but the oil is shipped somewhere else.

I don't think the U.S. or the American people own the oil in this country. Drilling off of our coasts does not stop us from importing oil since it goes elsewhere before it comes back.

[NJmaverick]

1. You are confusing the financial aspect of the oil market

with the physical aspect

[county worker]

5. I would like to understand the whole thing.

Oil is in the ground. Nations give corporations the right to the oil in the ground. The corporations explore and drill. The oil is sold on the world market. The oil is purchased over and over in the futures market. It is stored in ships and tanks. At some point it is refined and sold to gasoline dealers.

All along this chain are middlemen making money by manipulating whatever they can. Each one adds to the price at the pump.

That's how I see it.

[Statistical]

8. Yup that is pretty much it.

However one exception. Nations doesn't "give" oil to corporations.

Generally access to oil is granted to corporations in one of three ways:
a) oil is nationalized. Companies like Exxon are paid for a service (exploration, drilling, production) however the profits are retained by the country.

b) oil is granted on per barrel basis. Exxon owns the well and the oil however govt charges Exxon a fee (either flat fee or % of profit) for each barrel extracted. Example: $20 per barrel.

c) oil land is leased. Exxon purchases a lease from the govt and pays annual taxes on that lease. Any oil exxon finds it sells and retains profits.


Most sane nations chose A.
Some chose B.
We have decided to stick with C.

[polichick]

2. Exactly - there is no U.S. oil market; only a world market. This is a scam. nt

[bhikkhu]

10. Or at least a very popular political talking point.

...which always gets some traction. In this case, its mostly addressed to the r's using their own stupid way of looking at things.

[maxsolomon]

3. the amount of oil off our coasts couldn't possibly meet domestic demand

exporting domestic crude for refinement is not why we import oil. we import it because we use more than we have. period.

[Statistical]

4. Generally oil is consumed closest to where it is produced.

This isn't universal but shipping oil requires oil (and $$$).
So oil is sold at current spot price around the world however we get most of our oil from close locations (including the US).

http://perotcharts.com/2008/07/united-states-oil-imports-by-country-march-2008/



Where we get oil is constantly shifting. Different oil is worth more or less depending on impurities. Also countries with high non-oil balance of trade may offer us a better price (to balance US exports). Transportation costs also factor into the equation. Also many times multiyear contracts are signed so even if source opens up closer it may not instantly be used.

Notice in the above chart: Mexico, Canada, Venezuala are all major contributors (Brazil is a rising contributor). We get a lot of oil from Saudi Arabia because we sell them lots of weapons (and other exports). Saudi selling oil to us specifically avoids them running up a trade deficit.


The largest single source of US oil is the US (we are third largest oil producer in the world).
The US actually produces quite a bit of oil (we just consume an utterly unsustainable amount more than we produce). Less than 5% of current oil production in this country is exported. Usually it is to Canda, Mexico, or Caribbean nations (once again).

So it is complex but most of oil produced in this country will be consumed in this country. Think about how silly it would be if we didn't (we produce oil and ship it to other countries then at same time other countries produce oil and ship it here).

[county worker]

6. Here's what I don't understand.

We do not drill for oil. We do not own the oil. It is not nationalized like other countries.

I think saying "we" drill for our oil does not describe what is really happening.

I live in Santa Barbara County. We have quite of few oil rigs off the coast. We have a refinery in Gaviota. None of the oil drilled for off the coast goes to that refinery. The oil goes into a pipeline to a place where it is loaded on ships and sent somewhere. If it was so simple that "we drill for our oil", we could drill off the coast, send to the refinery and sell at the station all within a few miles of each other and the price should be pennies. That does not happen!

[Statistical]

7. Like I said it isn't 100% perfect. however GENERALLY oil is sold to closest consumer

It may be that the refinery in your area already has a decade long contract for oil from Texas for example. Not saying they do but they might.

Also might be that the oil from wells is high sulfur. Removing sulfur from oil is expensive and not all refineries can refine very sour (high sulfur) oil. That oil might be going to China because likely they won't even remove the sulfur just burn the whole thing.

US exports only a small % of total oil it produces. 95%+ of oil produced in this country is burned in this country.
Santa Barabra just happens to be in that 5%.

Still you are right it isn't "our oil". We don't nationalize oil in this country (like every sane country on the planet does). However SB does receive some tax money for each barrel produced.

[TreasonousBastard]

9. Quite often your west coast refineries are at capacity and can't use all...

the oil pumped, so they sell it to Japan or someone else.

Other US refineries will also be at capacity, and so are any pipelines available for crude oil, so there's no place for the pumped oil but overseas.

Does this make sense? Yes and no-- the simple truth is that everyone makes money when this happens. The producers are making money pumping at capacity and the refiners and pipeline operators are making money no matter where the crude comes from. Moving crude and product around has become incredibly efficient so transportation has become a smaller part of the cost of the stuff.

Beyond that, there are many different types of crude oil, and some are better used for making plastics and stuff than refining for fuel, so they get sold to whoever will buy them.

[FBaggins]

12. Who is "we" in your formulation?

The jobs at the refinery, at the rigs, at the pipeline, at the plant that makes the rigs/pipe/etc...

...are they Saudi jobs or American jobs? Those people paying income taxes (instead of receiving unemployment checks)... do they pay the taxes to your state/country or to Nigeria?

Does the oil giant pay the US and CA for the drilling rights or do they pay someone else?


Your concern isn't really summed up in your first sentence. It's the structure of the system (capitalism vs. socialism) that you don't like. That's a perfectly reasonable position to take, but has little to do with how oil works (in terms of where it is drilled/sold/etc).

[hunter]

11. Big Oil has a pretty clear picture of what's left.

A lot of this information is proprietary. And many oil extracting nations simply lie about their reserves. But Big Oil has them figured out.

The game now is to tweak the machine such that Big Oil's profits are maximized as we tumble into the chasm.

Ouch, ouch, ouch, all the way down for everyone but Big Oil.

[Javaman]

13. "I don't think the U.S. or the American people own the oil in this country."

Of course we don't. The energy sector isn't nationalized.

It's all owned by private corps, even the national reserves have to be bought from a corp.

As a result corps can do with the oil as they wish.

We are just another customer to them.

I really wish the morons on the right would understand this very basic concept.