Oil: who pays $120/bbl, and to whom?

Starting at the beginning here…when we hear that oil is selling at $120 per barrel, who is charging that price? And who is paying it? Also, are those “barrels” the 55 gallon drums we are familiar with? IOW, how much per gallon of oil does $120/bbl translate to?

The barrel in the context of the oil industry is just a unit of measurement, equal to 42 American gallons or about 159 liters. It does not have any association with a true physical container. Thus, $120/barrel translates to about $2.86 per gallon.

With regards to your first question: The price of oil of x dollars per barrel means that oil is traded at this price on commodity markets - or, more specifically, a particular sort of oil is traded at this price. Crude oil comes in different sorts of different quality, although most market use one especially important sort as a benchmark of which the prices of other sorts are derived. There’s a number of actors buying or selling oil on markets: Crude oil producers will sell it to refineries for processing; speculators will buy it with the intention of re-selling it later on at higher prices; intermediate traders will buy it with the intention of exporting it somewhere else.

And where do the country of origin and oil companies fit into this setup?

Both of them can fit in both on the supply and the demand side of the market. There’s a widespread distinction in the oil industry between “upstream” (exploration of oild fields and production of crude oil) and “downstream” (refining oil into gasoline or another product and distributing it).

To begin with the oil producing countries: Many of them have state-owned corporations mining crude oil, such as Saudi Aramco in Saudi Arabia, PDVSA in Venezuela, National Iranian in Iran or Petronas in Malaysia. Some of these companies lack refining capacities, so they cannot refine their crude oil (or at least not all of it) by themselves and sell it instead. Iran, for example, exports large amounts of crude oil but actually is a net importer of gasoline and other refinery products because the country has few working refineries.

Some European countries, OTOH, such as Austria or Germany, don’t produce any crude oil at all (or at least very little), but do have refineries, so companies based there buy crude for processing. Other oil companies are integrated; they’re active both upstream and downstream, making profits at every stage of the process. ExxonMobil and its many subsidiaries are an example for this.

What you are hearing is people bidding on oil futures.

wikipedia: Price of petroleum

I’ll try to make it simple.

With a futures contract, there are two people. The writer of the contract promises to deliver the barrel of oil at the agreed upon price. The buyer of the contract agrees to pay the price of the contract and accept delivery of the oil at the agreed upon price.

The person who wrote the contract either will deliver the physical product from their inventory or will have to purchase the product on the open market at the spot price and deliver it to the buyer.

Unless I am mistaken that works out at roughly 40 pence (UK) a litre… so somebody (the govt?) other than the oil company is charging me another 75p per litre???

One of the key parts of refinement is seperation through fractional distillation. Crude oil is a whole mess of different fossil fuel products, only a small portion if which are suitable for gasoline, and those are probably at this point the most valuable ones by volume.

So, the refinery may pay 40 cents a liter, spend more money on the process, and only end up with a third of a liter of ‘petrol’, plus some other stuff.

That’s for crude oil. Refining crude oil into gasoline (and other products) takes considerable time and effort, and only a relatively small volume of the original crude comes out as gasoline (the rest is refined into lighter and heavier fuels, natural gas, paraffins, and other junk). On top of that, the UK has gasoline taxes that you have to pay.

The beauty of futures. Somebody buys oil from somebody else who does not really have it. He then sells what he does not have to someone else. No product changes hands but billions are being made.

The participants in a futures contract are buying rights and selling obligations.

Increasing prices,making profits and never having a product. It is financial manipulation ,not actually selling barrels of oil.

If you buy a one futures contract on the Nymex you are agreeing to take delivery of 1,000bbl of west texas intermediate crude at Cushing Oklahoma or delivered by pipeline to one of the east coats ports at a specific date depending if you are buying 3 or 6 month contracts. It is not financial spookery, it is a very real product and is really selling a barrel of oil.

Many people and institutions who get involved have no intention of taking delivery and will buy then sell the contract on to someone who does.
Similar futures contracts backed by a physical delivery exist for Forties blend, Brent blend, Arabian sour and sweet and many more.
There is quite a lot of crude that is not traded on the nymex or the other major commodoties exchanges, batches of oil are sold through auction, direct negotiations between producer and seller and every other way of selling stuff you could imagine. The prices of these trades are often linked to the benchmark blends and modified by the relative quality of the crude, for example Azeri light will often get several percentage points over Brent, Urals sour will trade lower.

The oil never moves. That is financial manipulation not product creation or delivery.

That’s the economy, stoopid! :stuck_out_tongue:

It’s possible to speculate in any futures market (not just oil) without having any interest in producing or acquiring the underlying product. In fact, that’s one reason why futures markets exist–to transfer risks from hedgers to speculators. However, tautologically, for every person who makes money by speculating, someone else must lose. It’s a zero-sum game.

If you buy a futures contract, it represents real oil that does move and you will have to take delivery of. It exist, it is in a tank or pipeline and will end up somewhere.
From the Nymex rule book

‘’(A) Delivery shall be made F.O.B. at any pipeline or storage facility in Cushing, Oklahoma with pipeline access to TEPPCO, Cushing storage or Equilon Pipeline Company LLC Cushing storage. Delivery shall be made in accordance with all applicable Federal executive orders and all applicable Federal, State and local laws and regulations.’’

If the oil is not moving or the trading is just a figment why would you need to specify a delivery point?

Options trading on oil futures and all manner of other swaps and financial instruments exist, which are physically backed, these are certainly more abstract and do not require someone to take delivery, however the prices for those are not the $120/bbl being discussed.

What are you talking about? If you buy a futures contract for oil and hold it until the maturity date, you will then have in your possession a certain amount of real oil in a real container that exists in reality. Just because some people choose to sell their contracts before delivery is due doesn’t mean they’re selling some magical fictional instrument that doesn’t exist.