Sunday, September 04, 2005

understanding oil/gas prices-revisited

I got information from the EIA (US Govt Energy Information Administration). this information shows us plainly that prices are not set by oil companies. if you hear anyone talking about that, they are flat out wrong, and you should set them straight.

real information on how prices are set

"The pre-tax price of gasoline (or any other refined oil product) reflects:
- its raw material, crude oil
- transportation from producing field to refinery
- processing that raw material into refined products (refining)
- transportation from the refinery to the consuming market
- transportation, storage and distribution between the market distribution center and the retail outlet or consumer.
- market conditions at each stage along the way, and in the local market."

"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. Oil markets are essentially a global auction -- the highest bidder will win the supply. Like any auction, however, the bidder doesn't want to pay too much. When markets are "strong" (when demand is high and/or supply is low), the bidder must be willing to pay a higher premium to capture the supply. When markets are "weak" (demand low and/or supply high), a bidder may choose not to outbid competitors, waiting instead for later, possibly lower priced, supplies."


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