I must apologize to Lindy. After reading her comments I can see why this idea is not as ridiculous to the general public as it is to someone in the petroleum or closely related chemical industry.

Let’s go over a few facts here

1) Gas is not oil. It is refined from oil. An energy and labor intensive process.

2) A barrel of oil has bounced between 20 and 30 dollars for most of the last 2 decades. At an average inflation rate of 3% that means a 30 dollar barrel is equivalent to $16.6 per barrel 20 years ago (30/(1.03^20)). That means the upper end of the common range today is cheaper than the lower end 20 years ago. Yes Lindy oil is cheap.

3) A barrel of oil is 42 gallons of oil. That means oil cost is roughly $0.62 out of the $1.50 you pay at the pump. That’s real rough because it doesn’t take into account that a barrel of oil goes into many different products besides gasoline like heating oil, asphalt, and basic chemical feed stocks.

4) Oil company profits go up when the price of oil rises because for the some reason they keep a similar profit margin. When the price of oil goes up the relative amount of profit stays roughly the same but the absolute dollars rises. Oil companies benefit from expensive oil not cheap oil.

Regards,
Mark Eby