[dragracer567]

Now, contrary to what the title might suggest, this is more of a questionnaire than an explanation. These are questions that have accumulated over the years, and I sincerely hope that the distinguished members of Team-Bhp could help answer this.

I understand the basics of crude oil pricing in that the prices are determined by oil contracts through projected supply and demand scenarios in the future rather than present supply and demand which explains the unpreceded crash in oil prices to negative territory recently.

PS some of my questions might seem absolutely silly but please bear with me.

1) So, I spent my childhood in Kuwait, UAE and Saudi Arabia, where in the noughties, petrol at the pumps was dirt-cheap. Petrol in Kuwait was about 0.23 USD while petrol in Saudi Arabia was 0.16 USD. It was during this time that UAE 'de-regulated' the fuel prices and subsidies were removed because only ADNOC (the Abu Dhabi based oil company) had their own refineries while Emarat and other company bought at international prices. So, the prices jumped almost 25% to 0.47 USD which was unprecedented at that time. Now, Saudi Arabia deregulated and removed subsidies as well, so petrol now costs 0.43 USD there which is also unprecedented because Saudi at one point used to have the second cheapest petrol prices on earth after Venezuela.

Also, in Ecuador another oil-producing and OPEC country I've been to, petrol costs about $ 0.46 USD which includes subsidies (they had massive protests in 2019 when these subsidies were removed, the subsidies were reinstated later). However, this I understand since they are forced to export crude and import refined petroleum due to the lack of capacity in their refineries.

(Note: UAE and Saudi currencies are pegged to USD while Ecuador uses USD as its only legal tender, to give you an idea about the inflation)

Now, my question is, if giant oil producers like Saudi and UAE produce their own oil and have their own refineries, why are they forced to buy petrol at international prices? Or am I looking at this completely the wrong way?

2) My second question is about India. I noticed this interesting statistic that while India is the third-largest crude oil importer, India is also at the same time fifth-largest refined petroleum exporter. In the 2018-19 period, India imported $120 billion worth of crude while at the same time exporting about $42 billion worth of refined oil. So, would I be right in saying that our net-bill for petroleum is just $78 billion (still high)? Would I be right in saying that effectively, we aren't losing as much money from crude oil imports as the politicians claim?

NOTE to Mods: Please link this post to an existing thread if deemed necessary.

[alpha1]

Originally Posted by dragracer567

1) Now, my question is, if giant oil producers like Saudi and UAE produce their own oil and have their own refineries, why are they forced to buy petrol at international prices? Or am I looking at this completely the wrong way?


2) My second question is about India. I noticed this interesting statistic that while India is the third-largest crude oil importer, India is also at the same time fourth-largest refined petroleum exporter. In the 2018-19 period, India imported $120 billion worth of crude while at the same time exporting about $53 billion worth of refined oil. So, would I be right in saying that our net-bill for petroleum is just $67 billion? Would I be right in saying that effectively, we aren't losing as much money from crude oil imports as the politicians claim?

1) Please understand that when we say a certain "country" is producing oil, it means that there are certain fields owned by the Govt of that country which leases the asset to operators (oil exploration and production companies).
These "operators" have to pay licensing fees to the govt, have to incur cost in surveying and bidding, establishing a rig and running it (equipment cost, manpower cost, local cost, imported material etc).

All these costs are real and cannot be simply "written off" even if the Operator company is 100% Govt enterprise.

The same situation holds true for refining company that buys crude oil from the above operator and refines and produces fuels like gasoline, diesel, kerosene, LPG, fuel oil.

And the same holds true for the oil marketing companies that buy the fuels from refiners and brings it to us: the consumer's table via retail outlets etc.

At each stage there is a cost associated. At each stage there is a potential to buy/sell the product from/in international market.

Why would a company want to lose out billions of dollars by selling in-house rather than selling out to the world? This hold true even for the Govt owned enterprises. Would you be interested in working for such a firm at say 1/10th the market salary? Or supply material to such a firm at 1/10th of market rate?

So what populist Govt's (and kingdoms) do is to issue a subsidy to these enterprises involved in the value chain so that they do not lose out profits and start defaulting on payments of salaries and vendors; this subsidy is financed from some other taxes or royalties being paid to the Govts by the public or private enterprises.

The public feels that they are getting petrol for free, whereas they don't realize that they are paying for its somewhere else.

Once the Govt is unable to cross-subsidize or starts running out of collections, they remove subsidy attracting public consternation that the prices are rising.



2) you have to define who are "we" in your question. If a private company like Reliance imports crude, Govt earns via customs duty. When Reliance sells petrol to Indian public - the Govt again earns money via taxes and duties.
Even if Reliance decides to export the fuel instead of selling inside India - it pays income tax to the Govt.
So who is losing money?