On August 2, The New York Times reported that the (near) final estimate for the total amount of oil leaked into the Gulf of Mexico as a result of British Petroleum’s (BP) Deepwater Horizon drilling accident is approximately 4.9 million barrels. It would be nice to understand what this number means in the context of the commodity markets where oil is traded. It would also be nice to better understand what this oil spill did to BP stockholders.

Wolfram|Alpha can help answer these questions. For example, someone might wonder what all this oil would be worth on the oil market. The input “price of 4.9 million barrels of oil” tells us that the value of this oil on the oil futures market is around $398.8 million (at the time this was written). That’s a lot of money just floating around the Gulf! But to be fair, much of it was cleaned up. Wolfram|Alpha also shows a graph of how the value of this oil has fluctuated over time as well as the latest quote of a barrel of oil on the New York Mercantile Exchange.

Price of 4.9 million barrels of oil

Someone might wonder whether the amount of spilled oil was enough to affect the price of oil in the U.S. The input “oil futures open interest” gives us the number of oil futures contracts currently in existence for the front-month contract.

As the graph illustrates, open interest starts out strong every month (as the front-month contract rolls forward to the next month). As the contract approaches expiration, some people close out their positions while others roll their positions forward into a future month’s contract. The best measure of open interest would be the higher numbers shown immediately after the front-month rolls forward (especially since other contract months aren’t accounted for here).

As the front-month rolls forward, the amount of open contracts seems to hover around 325,000 from month to month. Clicking the “More” link in the “Daily trade information” pod tells us that one contract represents 1,000 barrels of oil. Therefore, open interest in oil contracts is about 325 million barrels.

This amount represents about 1.5% (4.9M/325M = .015) of the oil trade in the front-month contract—not a huge amount, but not completely negligible. However, if this analysis were to account for other contract months and other commodity exchanges around the world, this number would be reduced to a much smaller fraction. The conclusion is that the amount of oil spilled into the Gulf shouldn’t be enough to really affect the price of oil much (assuming it was available for sale).

BP lost tremendous value as a company as a result of the spill, so one might wonder exactly how much value it lost. The input “British Petroleum market cap April 20-Aug 6” shows that the value of the company went from around $190 billion before the spill to around $120 billion on August 6. An investor holding BP stock would have lost about 37% of his or her investment since early May!

One might wonder how a balanced portfolio including BP might have been affected by the spill. The input “4 shares of British Petroleum + 1 share of Apple + 10 shares of GE + 9 shares of Kroger” illustrates the evolution of the portfolio value through the BP oil spill period. The portfolio lost a lot of value over the last few months (-14%), but nowhere near what BP stock alone lost in value (-37%). The stock market as a whole (input “stock market”) faltered during this period as a result of low employment and fears stemming from the European debt crisis.

In just a few short inputs, Wolfram|Alpha was able to give us a good financial perspective on the volume of oil spilled in the Gulf, the effects it may have had on the oil market, and the effects of holding BP’s stock alone or in a portfolio. But, this is just one example. Wolfram|Alpha has many financial capabilities just waiting to be explored by users.

1 Comment

Once again, “British Petroleum”. I am not a share holder, nor do I necessarily support the actions of oil producers where-ever they hail from, but I am British and come from a place where it is common knowledge that BP is no longer legally known as British Petroleum just as BT is no longer British Telecoms.

Posted by Mike August 10, 2010 at 5:29 pm Reply
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