Why not? Those countries have regulations too.
^
nice one leachim, but demand is not an after-the-fact or even real-time measurement. it’s a future estimate. prices went past $60 per barrel 3 years ago only because of increased development in china and india where you have more than 2 billion people who, in the past, were amongst the poorest in the world but will likely be as rich as americans in the next few decades. their demand will not match supply within the next 10 years (or will it?)
to mr X, an engineer from shell told me about their extraction costs. but ok, lets get better numbers.
Modern refining uses chemical reactions to crack up the larger hydrocarbon chains to maximize the production of high value products like gasoline and jet fuel. So it may not be rocket science, but there is plenty of science involved. Refineries are very expensive to design and build and there is significant lag time bringing them onstream, not to mention the need for separate storage and distribution system for each of the products. It’s cost effective to transport the crude oil and locate the refinery near the markets you are selling into, or near a major pipeline distribution system, rather than paying to store and transport a dozen individual products over vast distances.
I don’t know what you mean by this, oil companies certainly keep track of how much oil they’ve sold, and the exchanges certainly keep track of how the futures contracts get resolved. Demand after the fact is certainly known.
But that doesn’t really matter. So long as certain sensible conditions are met --demand at a high price is always less than demand at a low price, and production at a high price is always less than production at a low price – the market will find a price at which supply == demand without any actor in it actually knowing what the actual demand value is.
And we know that this happens (more or less) in the real world from the simple fact that oil companies aren’t dumping unsold crude in the New Mexico desert. Every drop that is produced is sold, or the price comes down until it is.
Some of the current demand is certainly speculative (i.e. people demanding now with the intention of becoming suppliers later at a higher price), but that is limited simply because every barrel that is bought for non-immediate consumption has to be stored somewhere, and there are only so many spots to store oil, and they all cost a lot of money to use. Energy traders might try to distance themselves as far as possible from the mechanical process, but they can’t change that reality.
At the end of the 2008 oil price bubble, this resulted in supertankers roaming the pacific, full of oil, indirectly being high-cost storage units for energy speculators.
Refining is not a very profitable business. It certainly can make money at certain times, but refining margins are not very well correlated with oil prices. For example, during the price spike in 2008, refineries were doing terrible. The costs (crude oil) were rising faster than their product (gasoline). As such, they were squeezed.
Currently, refineries are doing very well in most parts of the country. West Texas Intermediate oil prices are depressed compared to the rest of the world while gasoline prices have risen more in line with other crude prices such as Brent or Light Louisiana Sweet. Margins have contracted.
The 3-2-1 crack spread is a pretty good indicator of overall refinery profitability if anyone wanted a simple thing to track.
Of note, ConocoPhillips just decided to split into two companies (oil & gas production and refining). The basic reason is that they felt their stock price was being hurt by the refining operations. Marathon just did the same thing a few weeks ago.
online sources give different numbers. total world consumption is around 80 million barrels a day. we used to have an excess production of more than 10 million a day. when writers say that the average price per barrel from 1945 to 2000 is $19, sometimes spiking to $28, they basically mean cost ex-plant (price=cost.) but two things are acting in unison: peak production, experienced in 2007 has been going down due to supply shocks (notably iraq and venezuela.) this isn’t the peak oil phonomenon people are talking about but a temporary shock. then, there’s the increased consumption we know. various sites put the excess production between 1 million barrels a day to 5 million.
if you have something like the above situation, there’s no reason why price should have a large premium over cost. what we know is that there will no longer be new cheap oil (production cost per barrel will steadily go up to maybe $50/barrel.) and oil is one industry wherein production is a lot trickier to forecast than demand.
Look at all the cheap plastic junk coming in from China. They have to buy most of their feedstock at world prices. The oil rich countries are capital rich too. What do you need to make electronics, sand? They have plenty of that too.
Does this mean that the U.S pays the same amount per barrel for Venezuela’s crappy oil even though it’s much more difficult to refine?
If so then why doesn’t the U.S tell Chavez to go piss up a rope?
Nope. Different grades of crude oil cost different amounts. That’s why the “price of oil” is somewhat misleading. It is, at worst, the price of a particular type of oil (West Texas Intermediate, for example) or, at best, some kind of composite that doesn’t reflect the oil taken from any particular location.
We pretty much do. So what? It still gets refined here for other customers around the world. As noted above, even oil exporters like Iran occasionally need to import gasoline.
While the US is a NET importer, that just means we import more than we export.
The concept of having our businesses refuse to refine Venezuela’s oil is asinine, at best. It drives up demand for the remaining oil (of which we use a large portion). So, we’d be cutting our own collective nose off to spite our face.
Based on the above responses, I conclude that oil refining really is that goddamned hard. Thanks to everyone for your responses, except msmith537, who is a douchenugget.
I’m not an expert on oil refining, but I think Professor Jonathan Katz had some interesting insights in his essay on nuclear proliferation. He points out that there are SECRETS and secrets:
I would guess that this applies very much to petroleum refining. You need a large crew of smart and trained men as well as a good amount of time to work out the bugs.
Probably political stability is important too. What bank is going to lend millions of dollars to build a delicate piece of equipment in an unstable part of the world? And who would insure it?
You are suggesting Kuwait doesn’t have that sort of cash?
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Not sure if that is a typo but I have always heard that production will increase at a higher price. A higher price gives producers more incentive to increase production.
Another problem with gas/oil is demand is relatively inelastic. Most people can’t buy a new car with better fuel economy when the price of gas goes up, most people still have the same commute to work, etc.
The other consideration is education. We take it for granted that everyone knows how to use a computer and a wrench, that you can hire qualified mechanics by placing ads - let alone engineers and chemists who know how to design, build and run a refinery. When even the people who keep the trucks in the refinery running have to be specifically and specially trained, when all the engineers have to be hired from abroad and paid premium wages, when the construction crew to build the refinery, and the steel piping and control electronics, etc. all have to be imported, when lead time to order an extra bag of bolts is weeks… let alone those specialized high-temp high pressure components… The cost of building a refinery in Kuwait or Iraq is in no way comparable to the USA, but the trade-off of cost vs. future usefulness is the same calculation.
Here’s a semi-related question. My grandfather was telling me stories a few years back about the places he has worked. He was a welder/pipe fitter by trade. Sometime before my dad was born (1961) and after he was an adult (born in 1930, so I assume after 1948) he worked somewhere in Central or South America as a foreman on a construction crew building a refinery.
He told me one day he was escorted back to where he was staying by armed military personal due to some form of revolution or government overthrow. There were armed guards outside where the foreign crews were staying for about two weeks, then they were allowed to go back to work but not allowed to go anywhere else. He said he slipped off to an airfield as soon as he could, paid someone to smuggle him out on the next flight to anywhere else, and got home. He told me that was the only time in his life he had been dishonest in a matter of money or contracts, and that he was ashamed to have skipped out on his contract, but that he didn’t want to end up dead or in prison in a foreign country.
What country might this have been and when?
Some wells produce raw gas naturally. The quality varies from one oilfield to another. Casing head gas was often sold illegally (it’s not taxed) and very cheaply in and around the oilfields.
You had to use an extra filter in the gas line and be prepared to replace it often. This was in the older vehicles 30 years ago. I wouldn’t dare use casing head in a modern fuel injected car with emission controls. These new cars would die a horrible death from raw gas. 
I would guess they probably do. And in fact there do exist oil refineries in Kuwait. But still, it’s reasonable to think that wealthy Kuwaitis invest their money where it’s most likely to get them the best return.
I think that’s tough, but fair. My feelings are still hurt pretty badly.