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Page added on August 13, 2016
Oil #2: The Price Of Oil
This is the second of five episodes.
In the first episode of our oil series, we bought oil — and we paid $40 a barrel.
A few weeks earlier, the price of that same oil would have been about 25 percent more. A few weeks from now, it might be 25 percent lower. Oil is just that volatile. But why?
Today, we try to figure out who really sets the price of oil? We go from an oil well in Kansas to the Chicago Mercantile Exchange. We even manage to talk to an actual oil speculator.
2 Comments on "Oil #2: The Price Of Oil"
rockman on Sun, 14th Aug 2016 11:57 am
“Oil is just that volatile.” No, it isn’t. What they are is describing the volitility of oil futures contracts. The price of which is BID by the speculators. Speculators that can radically change their BIDS within minutes of a breaking news story about oil. Also good to remember that for every BET that oil FUTURES (and not oil itself) will be selling for $X/bbl someone else has to make the same BET that it won’t.
The Rockman has sold oil for more the 40 years. And that price has never varied from hour to hour, day to day or even week to week. It has always been sold on the basis of a monthly contract price. And always based upon the price set by that individual buyer.
tk on Mon, 15th Aug 2016 9:41 am
@rockman
Exactly, that goes for ALL “commodities”, all traded in the future (“paper commodities”), and because “growth” is built into the “market” (which assumes there are infinite resources available), the “future price” of all commodities determines retroactivly the current prices.
And all is traded by algorithms, taken care of by “quants” by large hedge funds. (Essentially computer programs battling each other in different ways. “black box trading”…)
And another really bad thing about the “market” is, that ALL commodities are competitively traded as equally relevant, as if a barrel of oil is “just” a commodity like let’s say a ton of soy.
No cause and effect built into this “market”, leaving out that ALL other commodities are secondary to oil in priority.
ALL based on the assumption of future returns.
Like Prof phil John McMurtry said in the movie Zeitgeist Moving Forward:
“This [the “invisible hand” of supply meeting demand] got to be the most bizarre delusion in the history of human thought.”