Sunday, 25/9/2022 | 1:38 UTC+0

The dirty truth behind cheap oil

OIL prices are at their lowest level since 2009, which is good news for drivers. But behind the scenes is a dirty battle for domination which will impact on us all.

Heres the good oil and the bad on the worlds stocks of black gold.

EARLIER: Why they have us over a barrel


Why is the oil price falling?

Its a war of attrition. The 12 countries that comprise OPEC are trying to crush the shale oil producers of the US, whose rise they underestimated. Last week Saudi Arabias oil minister told fellow OPEC members they must combat the US shale oil boom, arguing against cutting crude output. That argument carried the day. Production levels were maintained, which is expected to depress prices and undermine the profitability of North American producers.

Oil is down by about 30 per cent since June, although West Texas Intermediate the worlds benchmark oil grade did bounce back 5 per cent overnight to $US69.31 a barrel. Some think the price could fall to as low as $US30 a barrel. The International Energy Agency estimates most drilling in the Bakken formation the shale producers that OPEC seeks to drive out of business makes money when oil is above $US42 a barrel.

Who has the oil?

Saudi Arabia has more proved oil reserves than any other country about 16 per cent of all black gold, according to the US Department of Energy.

Thats 266 billion barrels, the authoritative Oil & Gas Journal has estimated. Sixty-eight per cent of the oil it produced in 2013 went to Asia. According to the US Department of Energy, Venezuela has the second-largest reserve of oil, at 211 billion barrels. Others reckon it has the largest, putting its holding at nearly 300 billion barrels. It is sending a greater proportion of its oil to China and India and less to the US. Canada is third, according to both the US Government and the Oil & Gas Journal, followed by Iran, Iraq and Kuwait. The US is 12th on the list. Canada is the largest exporter of oil to the US. Saudi Arabia is second. Venezuela is third.

Roll out the barrels an employee checks sealed oil barrels as they move along a conveyor belt at a blending plant in Torzhok, Russia. Picture: Andrey Rudakov/Bloomberg
Source: Supplied

How much oil is there?

According to BP, total world proved oil reserves reached 1687.9 billion barrels at the end of 2013 enough to meet 53.3 years of global production and nearly 20 billion barrels more than was known to exist at the end of 2012. The largest additions to reserves came from Russia, adding 900 million barrels and Venezuela adding 800 million barrels. In 2013, global consumption grew by 1.4 million barrels a day. All of that growth came from emerging economies. Rich countries consumption fell by 0.4 per cent, the seventh decrease in the past eight years.

Where does our oil come from?

According to the US Department of Energy, most of Australia crude oil imports are from Malaysia, United Arab Emirates, and Indonesia, which altogether produced about 48 per cent of what we brought in during 2013. Another 20 per cent came from West African nations such as Nigeria, Congo and Gabon.

Our precious but cheap prices for petrol are not entirely good news.
Source: Supplied

Who is OPEC?

OPEC or Organisation of the Petroleum Exporting Countries was founded in Baghdad in 1960 by Iraq, Iran, Kuwait, Saudi Arabia and Venezuela. It now has 12 members: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Combined they have 72 per cent of the worlds reserves, according to BP. OPEC defines its mission as being to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilisation of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.

What does all this mean for you?

The biggest effect is at the bowser. Last week the Singapore gasoline price the starting point for calculating the cost of filling up here fell by US$6.70 or 7.5 per cent to a 4-year low of US$82.80 a barrel. According to CommSec, in Australian dollar terms the Singapore gasoline price fell by $6.16 a barrel or 5.9 per cent last week to $A97.52 a barrel or by 3.87c/L to 61.3c/L. Over the past four weeks, the Singapore gasoline price has fallen in Australian dollar terms by 9.5c/L. But not all of this benefit has been passed on to motorists. Petrol companies are keeping it. The margin between retail and wholesale prices has blown out to levels not seen since 2010. Groups such as the Australian Automobile Association say it is very concerning. CommSec reckons we should be paying about 10c/L less than we are.



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