Netback

AAA

DEFINITION of 'Netback'

A summary of all the costs associated with bringing one unit of oil to the marketplace, and all of the revenues from the sale of all the products generated from that same unit. The netback is calculated by taking all of the revenues from the oil, less all costs associated with getting the oil to a market. These costs can include, but are not limited to, importing, transportation, production and refining costs, and royalty fees.

INVESTOPEDIA EXPLAINS 'Netback'

For example, let's say it costs a total of US$125 to convert one barrel of light crude oil into heating oil, gasoline, diesel and petrochemical byproducts. Next, assume that all of those products could sell for a total of US$200. The netback in this example would be $75 ($200 - $125). Keep in mind that the costs associated with converting one barrel include all of the costs the company incurred to get that barrel to the marketplace.

This figure allows exploration and production firms to compare their costs with those of their competitors; it also allows for more efficient planning regarding which products a company should focus on producing.

RELATED TERMS
  1. Balance Of Payments (BOP)

    A record of all transactions made between one particular country ...
  2. Recycle Ratio

    An important measure of the profitability of an energy company. ...
  3. Balance Of Trade - BOT

    The difference between a country's imports and its exports. Balance ...
  4. Crack Spread

    The spread created in commodity markets by purchasing oil futures ...
  5. Import

    A good or service brought into one country from another. Along ...
  6. Export

    A function of international trade whereby goods produced in one ...
RELATED FAQS
  1. How can I hedge against rising diesel prices?

    In early 2007, the New York Mercantile Exchange announced that traders would be able to buy or sell futures contracts on ... Read Full Answer >>
  2. How are fixed costs treated in cost accounting?

    Fixed costs are one of the two major inputs, along with variable costs, in cost accounting that are used by a company's management ... Read Full Answer >>
  3. What are the key differences between financial risk and business risk to a company?

    Financial risk refers to a company's ability to manage its debt and financial leverage, while business risk refers to the ... Read Full Answer >>
  4. How are commodity spot prices different than futures prices?

    Commodity spot prices and futures prices are different quotes for different types of contracts. The spot price is the current ... Read Full Answer >>
  5. How do commodity spot prices indicate future price movements?

    Commodity spot prices indicate future price movements because commodity futures prices are calculated using spot prices. ... Read Full Answer >>
  6. Where did market to market (MTM) accounting come from?

    Mark to market accounting has been around in concept since the stock market began; however, it was not officially part of ... Read Full Answer >>
Related Articles
  1. Home & Auto

    Getting A Grip On The Cost Of Gas

    Feeling overwhelmed by rising oil prices? We offer some tips that will save you money.
  2. Forex Education

    Commodity Prices And Currency Movements

    Find out which currencies are most affected by fluctuations in gold and oil prices, and improve your trading.
  3. Bonds & Fixed Income

    6 Factors That Influence Exchange Rates

    Find out how a currency's relative value reflects a country's economic health and impacts your investment returns.
  4. Options & Futures

    Interpreting Overnight Action In The Index Futures

    Overnight action in index futures sets the tone for the U.S. market day. Traders can use 24-hour index futures charts to predict action in the coming day.
  5. Investing Basics

    Understanding Related-Party Transactions

    In business, a related-party transaction refers to a transaction where parties on both sides have a common interest or relationship.
  6. Investing Basics

    What Does Spot Price Mean?

    Spot price is the current price at which a security may be bought or sold.
  7. Economics

    What are Deliverables?

    Deliverables is a project management term describing an object or function that must be provided or completed by a certain due date.
  8. Investing Basics

    What Does a Clearing House Do?

    A clearing house is a third-party agency or separate entity that acts as a go-between for buyers and sellers in financial markets.
  9. Savings

    Do Oil Prices Affect The Auto Industry?

    Based on an understanding of complementary and substitute goods, the American auto industry is exhibiting expected effects from the recent plunge in the price of oil.
  10. Investing Basics

    What is Meant by Implied Volatility?

    The estimated volatility of a security's price.

You May Also Like

Hot Definitions
  1. ZEW Economic Sentiment

    A monthly economic survey. The ZEW Economic Sentiment is an almalgamation of the sentiments of approximately 350 economists ...
  2. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then ...
  3. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  4. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  5. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  6. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!