As the resident oil industry wrather - this is roughly how it works.

Country sells licence to oil company to drill for oil. Company drills well, finds and extracts oil and pays tax on every barrel it extracts to the resident country. Oil company transports oil to refinery which turns it into various products. Oil company then sells petrol etc to the supermarkets via the spot market or sells it through its own outlets to the consumer.

The cost of extraction, transport and refining varies greatly according to where the oil comes from, how difficult it is to extract and the amount of refining required. North Sea oil requires much less refining than saudi oil for instance.

Of what you pay for a litre of fuel, about 65p is fuel duty and VAT and goes straight to the Govt, about 5p goes to the retailer (more or less) and the rest goes to the oil company (currently about 50p a litre on unleaded). of that 50p you need to deduct the exploration, transportation and refining costs, plus the tax and overheads incurred by the oil company. On average they are currently making about 35p clear profit on a litre.

That may seem huge, but the fact that the price is so high is making huge reserves in the North Sea and elsewhere round the UK commercially viable to extract, whereas they weren't before, which will prolong the life of the UK industry (nearly 500,000 jobs currently) by about 20 years.

BTW, I don't work for an oil company, but many of them are clients of ours!

Posted By: Kirrie on June 13th 2008 at 17:11:26

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