Composite Barrel Analysis in

Oil Industry

By Puguh Bodro Irawan

E-mail: irawanpb@gmail.com

Vienna, 17 February 2012

What is Composite Barrel Analysis

(CBA) in oil industry?

The analysis can be used as a tool for promoting public education

or image, as a part of public relation campaigns:

* impacts of higher oil prices on the world economy

* negatively affecting GDP growth and global inflation

* prices of other commodities soaring up

* WHO benefits the most from the increased oil prices (oil windfall)

Prime beneficiaries:

* Oil producing countries?

* International Oil Companies?

* or Treasuries of the major oil consuming countries (G-7)?

How to quantify these benefits in one particular unit

value of oil product?

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CBA: aim and its components

To estimate components in the costs to produce and sell a barrel of gasoline and other oil products to final users.

Cost components:

* cost of crude oil to refiners

* costs of refinery processing, marketing, distribution, retail station

* profits/losses of refiners, marketers, distributors, retail station owners

* taxes

Composite barrel analysis is an attempt to construct a per barrel aggregate retail product price and to disaggregate this value into its components, representing an average price per barrel of refined oil products

who gets what from the imported oil? (retail price of a litre of gasoline)

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Composite Barrel Analysis:

its major components

* There are 3 main components used in measuring

Composite Barrel Analysis (CBA):

1) Average price of imported crude oil

2) Taxes charged on different oil products in

consuming countries

3) Industry margin, i.e. refining costs,

transportation, distribution costs, IOC profits,

exchange rates fluctuations, etc.

* CBA in oil market analysis is commonly used in

major oil consuming countries of OECD, given the

fact that the component of oil products taxes is very

important in CBA within the context of its

comparison with oil prices subsidy issues in most

non-OECD countries

Crude price

Taxes

Industry margin

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CB: meanings of its components

Oil crude price: representing crude imports

costs, as an indicator of revenues earned by oil

exporting countries

Taxes: revenues earned by treasuries of

importing countries from imposing taxes on

products sold to final users

Industry margin: including profits of IOC plus

various costs

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CB: calculation

CB as average price of a consumption weighted barrel of 5 main refined oil products:

Let c and p be the consumption and retail price (including taxes) of the product groups, then

CB = (p1 c1 + p2 c2 + … + p5 c5) / (c1 + c2 … + c5)

Average taxes calculated according to above formula

Industry margin = CB – average taxes – crude price

Gasoline Kerosene Diesel Gasoil Fuel Oil

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CB in G-7 countries

Source: OPEC, Who gets what from imported oil, November 2011

In UK, the government charged taxes

$1.15 in every litre of fuel purchased in

the pump station with the averaged retail

price $1.77 in 2010, thus making taxes

accounting for two-thirds of total retail

fuel price.

Components of taxes in retail fuel prices

were also significant in Germany, Italy

and France, accounting for above 60%.

Of G-7 countries, USA had the lowest tax

component (16%) in retail fuel price.

In conclusion, the burden of high retail fuel prices are

on the final consumers, while most benefits from taxes

earning go to the Governments of consuming

countries, and of course to producing countries as

well.

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OECD Taxes versus OPEC Oil Export Revenues

G7 of

OECD 600

other OECD

278

734

0

100

200

300

400

500

600

700

800

900

1000

Billion USD

G7 OECD OPEC

878

Source: OPEC, Who gets what from imported oil, November 2011

During the last 5 years (2006-2010), the

averaged revenue earned by the

governments of OECD countries from oil

taxes reached US$878 billion per year, with

G-7 countries receiving $600 billion.

In the same period, 12 OPEC member

countries earned US$734 billion annually

from the exports of their oil.

Summary: CB and its usefulness

CB is a valuable tool to break down the costs of petroleum product paid by the final consumers into various components, including crude oil price, taxes, residual industry margin

An instrument to clarify public misconception about oil prices, especially in major oil consuming countries, about WHO benefits the most from the profits over higher oil prices

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