Was starting to wonder how the price of crude oil is actually set.
One can find everyday a price for Brent(North Sea) oil, in USD, which
is a benchmark. There is also a daily quote for WTI (West Texas Intermediate),
which is the North American standard; the two are often close, but not spot on the
same, so I was wondering...Oil is both a commodity and financial product,
traded for profit on a futures market. How does all this come together.
Rather fascinating.
Got from this Alberta energy pdf that the price of oil is what the oil producer gets.
Naturally, quality counts and a more pure product is worth more. But there is
also the question of transportation costs to delivery. For an equal product, one is worth
less than the other if it is expensive to deliver. This is why Brent is such a star: easy to
move by land or sea, although distance is also a a factor.
https://money.howstuffworks.
The above link describes high drama: what happened leading up to the 2008
financial crisis. There was indeed more going on at the time - pricipally with the
finacing of mortgages - but his was a derivatives market: not even selling oil futures
at all.
https://www.eia.gov/
To appreciate the role of futures trading, one has to consider global supply and
demand, and that means OPEC. They hold the reserves and excess capacity.
https://www.investopedia.com/terms/d/delivery-point.asp
https://www.investopedia.com/terms/d/derivative.asp
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