Re: How much is a barrel of oil worth?

Good question, Marty.

I work in the petroleum industry myself as a geophysicist (looking at seismic
sections and trying to find oil and gas). I'm not too familiar with
refining or compositional analysis but I can offer you the following
observations.

Oils from around the world have different compositions (look up "Brent
Blend" or "West Texas Intermediate"). These trade at different prices and
have different potential to be refined into the various products. Some have 
unwanted contaminants such as sulphur or constituents like wax that require
special equipment to handle properly. Refineries have to be specially
designed to run on one type of input product, and be optimised to crack
the oils to specific product mixes. For example, Chinese refineries are
optimised to produce diesel, since most of their vehicles use it (and their
local crude oil happens to easily produce it, too). In the USA, refineries 
produce much more gasoline.

Over the past 20 years or so, refining companies have never made heaps of
money. The margins are fairly slim and the competition heavy. Anyone can
set up a refinery to exploit perceived market opportunities, or transfer
products from one state or country to another, so there are very few
protected markets and monopolies in that side of the business.

Upstream is a different issue. Oil can be found for, typically, $2.00 per
barrel exploration cost, and produced for $4.00 development cost. With the
international price of oil around $20.00 per barrel, that's $14.00 "profit"
i.e. an apparent 14/6 = 233% return on investment. 

Sounds nice, but there are a few snags. Not all oil is equally cheap to find
and produce. Saudi Arabia produces oil at an incremental cost of $0.40 per
barrel! Many wells in the USA, the North Sea, and other parts of the world 
become uneconomic if the oil price falls below $12 to $13 per barrel, so
some companies and governments make money at low oil prices, some don't.

Governments also step into the picture. They don't like to see companies
getting rich on their oil - a national resource. Most Countries have
special taxation rules that take extra tax from oil companies. It's common
for a government to require that 60% of all oil produced is given to them
for free, as well as the normal corporate taxes on profits.

Even with this tax situation, oil exploration is still attractive, but the
best areas in the world are hard to get into. Some people think that a new
oil price boom (read oil crisis, leading to possible worldwide recession)
is coming. Many companies are bidding very heavily for attractive areas
and the entry cost is getting very high. Unless the oil price goes up, many
of these companies may lose money. 

I don't know what will happen in the future, but it's a complicated
industry and it affects the whole world. Keep your eyes open over the next
few years and you may understand better some of the vagaries of economics.

Nick