Monday, December 31, 2007

What is the correct price for oil?

Our DPM said that if the petrol price is decreased, it would bankrupt our country. He further said that should the petronas profits at 70 to 80 billion('000 millions) be diverted to subsidise oil, there would be no money left for road building, etc. et al, among other things...

After reading the statement from thestaronline, the only thing that i felt was that i am damn pissed off.

Not because of him wanting to make some political statement or something, it was the standard of things that is said to his audience.( that would make you and me his audience)

A hypotethical scenario to illustrate my point:-

Say there was a serial killer running away from the scene of a crime carrying a bloody knife and bumped in to you and your friends. Instead of turning the around and run away, the serial killer look at you and your friends and say "this is not blood on my knife. I have just use it to cut tomato. It is actually tomato sauce on my knife."

What would you do in the above scenario? Run away? Running away is the smart thing to do probably. But not me. No way in hell.... I am going to beat that serial killer to a pulp. And i am not the heroic kind and neither am i too concern that i am being lied to....

The simple reason being that the serial killer THINKS THAT I AM STUPID ENOUGH to believe that tomato sauce comes out from tomato by cutting the tomato.

OK...Coming back to the DPM statement about 70 to 80 billion to finance the oil subsidy, can anyone remember our PM said that by increasing petrol price by 30 sen, the govt could save 4 billion?

Using what our PM says, 30 sen for 4 billion, at current price of RM 1.92 p/litre of petrol, if the price were to be subsidised to RM 1.02 p/litre, petronas would have to absorb just 12 billion. Thats a lot of money but it is nowhere near fucking 70 billion.

Actually from what i understand from oil economics, the higher the crude oil price, the more able petronas can subsidise. No, really. No bullshit. A typical oil price...

40% crude oil
40% conversion of crude to oil
20% govt tax

A rough estimate : say crude is 3 times more costly than it was a couple of years ago, when it was RM 1.10 p/lt. Probably crude was 50 sens and the remainder 60 sens is the conversion cost plus tax. Hence we could say that crude is now RM1.50 and that conversion cost plus tax maybe 70 sen which makes a grand total of RM 2.20 p/lt. Which is probably close enough to the billboard we see everywhere.

Then comes Petronas profit. Petronas as we all know is taking the crude in Malaysia by just paying 5% royalty. Hence a 95% profit on crude minus extraction cost which should be roughly constant throughout the years. By doing simple calculations, we could safely say that the higher the crude price, the higher Petronas profit is. And most importantly the proportionate increase in profit of Petronas is higher than the price of oil paid for in petrol stations.


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