What is the Breakdown of the Price of a Barrel of Crude Oil?

When it comes to the average consumer, the market price of a barrel of crude oil is no more than a vague indication of rising or falling gas prices. But for those who are involved in the oil and gas industry, oil prices have great significance: they directly impact our bottom lines.

Of course, market fluctuations play a large role in changing prices, and savvy market players invest in reliable fuel demand data to keep them informed in a fast-paced, changing market. 

In this day and age, there seems to be no shortage of available data. However, the ability to sift through the data and analyze what is important for an individual business and location is essential. 

DTN Refined Fuels Demand data allows you to supplement your inventory data with market demand data. With this customized information available at your fingertips, you can better manage inventories and pipeline movements while improving production efficiency and netbacks to the refinery. 

While it’s true that market fluctuations are by far the most volatile piece of crude oil prices, there are other factors involved as well. So, what exactly goes into the price of crude oil? The following takes a more detailed look at what costs are included in each barrel of crude.

 

Production costs

The process and costs of producing a barrel of crude oil start long before the oil even leaves the ground. After all, before you can drill for oil, you need to be able to find it! 

For offshore areas, seismic data is gathered and interpreted to map potential oil reserves under the seabed. Oil companies use this valuable information to get an idea of where to drill to find oil. The appropriate land must then be mapped and leased, and the proper permits obtained.

Once a potential oil deposit has been located, exploration wells are made to confirm the existence and size of the deposit before major drilling operations begin. You will need to prepare sites, build roads, and purchase and maintain the necessary equipment. This entire process can take years and cost millions of dollars before a single barrel of oil is produced. 

 

Transportation costs

Once you drill for the oil, you must also then transport it, a process with its own set of unique challenges. Moving oil from one place to another can be both costly and intricate. Pipelines often transport crude oil from the oil field, and while pipelines have never been cheap to build and maintain, the cost of constructing them is only expected to increase by the end of 2022.

Other methods, such as tanker trucks, rail, and ships, each have their own costs in addition to equipment and maintenance. First, there is the cost of maintaining a labor force, which depends on the fluctuations in the labor market. Then, there is also the cost of the fuel needed for these transportation methods. 

In many cases, there may be more than one method of transportation used, depending on where the oil needs to go. An approximate “price per mile” would be calculated and incorporated into the oil prices as companies make up for these necessary costs.

 

Market fluctuations

Market fluctuations account for the largest and most volatile portion of crude oil pricing. As it is a very fluid market, the cost of a barrel of crude oil is constantly changing throughout the day in response to market changes.

Like any market, the changes in supply and demand play a major role in commodity prices. Seasonality, in particular, tends to play a large part, as demand for heating oil rises in preparation for the northern hemisphere’s winter months, gasoline demand rises during the summer travel season. Inclement weather can impact oil production, causing a temporary pause in operations, lowering supply, and driving prices higher. 

Crude oil prices tend to be tied with world events and political changes as well. The Middle East is the location of a large amount of the world’s oil reserves. It also happens to be the location of clashing political tensions that can impact the movement and supply of oil around the globe. 

The Organization of Petroleum Exporting Countries’ (OPEC+) decisions can directly impact the supply of oil released on the global market, adjusting oil prices as they see fit. 

 

How fuel demand data helps downstream oil companies

With any business, protecting profit margins is essential for success. As a downstream oil and gas industry business, keeping up to date with market activity is crucial to ensure your company remains profitable despite the market’s volatility.

You’re likely to invest in a number of business systems, like inventory management, for example, to keep your operations running smoothly. But this data, while valuable, really only tells part of the story. 

DTN Refined Fuels Demand has been developed to fill an important need within the oil and gas industry — access to overall market demand and volume data. This reliable data allows you to:

• Easily access market share
• Avoid outages and disruptions
• Customize your data feed to fit your needs
• Access PADD-level and city-level demand data

With a number of satisfied clients, the results speak for themselves. Contact the experts at DTN today to learn more about how you can put the right data to work for you and your business.