Date registered: Sep 2004
Vehicle: 2014 E250 Bluetec 4-Matic, 1983 240D 4-Speed
Mentioned: 3 Post(s)
Quoted: 256 Post(s)
A barrel of crude oil has a pretty fixed production cost. The oil companies typically lease the deposit from the local government. Once the deposit is being "harvested" by whatever the suitable technology is, the capital cost or investment of profits in the project is pretty close to being over and quickly paid for, and all that is left as an ongoing cost is labor, maintenance and, of course, the the lease. The oil itself is pretty much "free" compared to the typical manufacturing industry where the cost of raw material is actually "free" to rise with demand. The uncontrolled demand for oil is what drives the price up. Which is pure profit as the lease is not renegotiable in most places in the world. If that profit is reinvested, then the oil company secures additional deposits.
The trend in South America and other countries to cancel the leases abruptly and nationalize the installed facility is a disruption in the financial planning of those oil companies affected as they typically have their stock prices tied to the value of their known, leased reserves. So, they lose inventory and production is one shot. In the Middle East the trend is to have the local government a co-investor in the project, at a greater than 50% level, so they reap the benefits of our lust for oil at any price.
So, don't kid yourselves. When the price of a barrel of oil doubles, the profit much more than doubles. All of the increase is profit, while the original profit margins calculated when the hole was drilled in the ground, which were obviously satisfactory, were based on the price of that barrel of oil, minus all the expenses, which have all stayed pretty much the same, or actually dropped as China entered the oil and gas equipment markets and drove costs down.