Business Price

the Guide Price Of Oil

Introduction

Crude oil is arguably one of the most vital commodities in the world today. This product and its derivatives have made a huge impact and are used virtually in almost every contemporary application of modern life such as transportation or metal production. This type of commodity is also prominent in many political affairs all over the world and maintains that those chief oil producing countries will have major influence on the world market. In relation to this, many have assumed that most commodity investors understood everything about this commodity and how it is traded globally. Sad to say, this isn’t always the case, as there are various misconceptions about the numerous types of oil and how their guide prices are determined.

How are Crude Oils Sold in the World Market

Generally, crude oil is sold through several contract agreements and in the spot market. Oil is also traded on the futures markets but not to deliver volumes of oil physically but more as a way to spread risk. These methods have an integral role to play in indicating guide prices to markets. The primary criteria in selling marker crude is to sell it in adequate volumes to support liquidity (for the buyers and sellers) in a physical market and have similar physical attributes of crude oil alternatives.

It is a fact that pricing for crude oils has increased its transparency from early ‘90s and beyond with the use of marker crudes like: Dubai, Tapis and Dated Brent (in Asia-Pacific), Dubai and Oman (Middle East), Brent (Europe, Africa and Asia), West Texas Intermediate (WTI – USA)

Trading Crude Oils Globally

Both active speculators and traders may profit from the fluctuations in oil guide prices by buying or selling Crude Oil CFD (Contract for Difference – a futures contract paid in cash). Crude oil is likely to pursue certain lines of trend in the long term. So, if an investor can spot a trend accurately, then he or she can profit from these market movements by selling "short" or buying "long" for this commodity.

Demand for oil is highly reliant on global macroeconomic factors, which is also very important in determining oil guide price. Many economists claimed that steep oil prices have a huge negative impact on the world’s economic growth. This could mean that the correlation between the oil guide prices and global economic growth is not specifically stable; however, high oil price is typically associated as a post cycle phenomenon.

Guide prices

Guide prices for crude oil moves just as any other commodities with extensive price fluctuations during oversupply or shortage. The price cycle for crude oils may stretch over many years as a response to changes in demand, and OPEC (Organization of Petroleum Exporting Countries) and other non-OPEC supply.

It’s true that the price of crude oil is the leading operation cost for oil refiners. However, the connection between these costs and the final price for petroleum products generated from crude like diesel or petrol is not as absolute as one would like to believe.

Several Factors Affecting Oil Prices

Crude oil and other petroleum products are greatly influenced by several factors including:

general supply and demand for crude oilsupply and demand for petroleum commoditiesfreight pricespresence of competition in crude oil marketpresence of competition in local and regional petroleum markets

They all play major roles in deciding the ultimate guide price charged to the final consumers and these roles may change over time. Due to its broad complexity in markets which makes it quite hard to determine its price as part of market regulations.

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By Ignat Victor, published at 03/08/2012
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