THE CRUDE OIL MARKET
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conditions at all stages of production and distribution. For example, he pre-tax price of gasoline or any other refined oil product
reflects the following:
1. The price of crude oil
2. Transportation from the producing field to the refinery
3. Refining
4. Transportation from the refinery to the market
5. Transportation, storage and distribution between the
market distribution center and the retail outlet or
consumer
6. Market conditions at each stage along the way, and in
the local market.
Oil markets are essentially a global auction and the price of
crude oil, the raw material from which petroleum products are
made, is established by the supply and demand conditions in
the global market overall, and more particularly, in the main
refining centers. In fact, crude oil prices are a result of thousands
of transactions taking place simultaneously around the world,
at all levels of the distribution chain from crude oil producer to
individual consumer.
Furthermore, there are several different types of transactions
that are common in oil markets. Contract arrangements in the oil
market in fact cover most oil that changes hands. Oil is also sold
in spot transactions (cargo-by-cargo, transaction-by-transaction
arrangements). In addition, crude oil is traded as a commodity in
futures markets, which are a mechanism designed to distribute risk
among participants on different sides, such as buyers versus sellers, or with different expectations of the market, but not generally
to supply physical volumes of oil. Both spot markets and futures
markets provide critical price information for contract markets.
Prices in spot markets are considered to be a signal of the
supply/demand balance. Rising prices generally indicate that more
supply is needed, and falling prices indicate that there is too much
supply for the prevailing demand level. Furthermore, while most
oil flows under contract, the price varies with spot markets. Futures
markets also provide information about the physical supply/
demand balance, as well as the market's expectations.
Seasonal swings are also an important underlying influence
in the supply/demand balance, and hence in price fluctuations.
203
conditions at all stages of production and distribution. For example, he pre-tax price of gasoline or any other refined oil product
reflects the following:
1. The price of crude oil
2. Transportation from the producing field to the refinery
3. Refining
4. Transportation from the refinery to the market
5. Transportation, storage and distribution between the
market distribution center and the retail outlet or
consumer
6. Market conditions at each stage along the way, and in
the local market.
Oil markets are essentially a global auction and the price of
crude oil, the raw material from which petroleum products are
made, is established by the supply and demand conditions in
the global market overall, and more particularly, in the main
refining centers. In fact, crude oil prices are a result of thousands
of transactions taking place simultaneously around the world,
at all levels of the distribution chain from crude oil producer to
individual consumer.
Furthermore, there are several different types of transactions
that are common in oil markets. Contract arrangements in the oil
market in fact cover most oil that changes hands. Oil is also sold
in spot transactions (cargo-by-cargo, transaction-by-transaction
arrangements). In addition, crude oil is traded as a commodity in
futures markets, which are a mechanism designed to distribute risk
among participants on different sides, such as buyers versus sellers, or with different expectations of the market, but not generally
to supply physical volumes of oil. Both spot markets and futures
markets provide critical price information for contract markets.
Prices in spot markets are considered to be a signal of the
supply/demand balance. Rising prices generally indicate that more
supply is needed, and falling prices indicate that there is too much
supply for the prevailing demand level. Furthermore, while most
oil flows under contract, the price varies with spot markets. Futures
markets also provide information about the physical supply/
demand balance, as well as the market's expectations.
Seasonal swings are also an important underlying influence
in the supply/demand balance, and hence in price fluctuations.