Introduction to Global Markets for Crude Oil

 

Crude oil is one of the most economically mature commodity markets in the world. Even though most crude oil is produced by a relatively small number of companies, and often in remote locations that are very far from the point of consumption, trade in crude oil is robust and global in nature. Nearly 80% of international crude oil transactions involve delivery via waterway in supertankers. Oil traders are able to quickly redirect transactions towards markets where prices are higher.

Oil and coal are global commodities that are shipped all over the world. Thus, global supply and demand determines prices for these energy sources. Events around the world can affect our prices at home for oil-based energy such as gasoline and heating oil. Oil prices are high right now because of rapidly growing demand in the developing world (primarily Asia). As demand in these places grows, more oil cargoes head towards these countries. Prices in other countries must rise as a result. Political unrest in some oil-producing nations also contributes to high prices - basically, there is a fear that political instability could shut down oil production in these countries. OPEC, the large oil-producing cartel, does have some ability to influence world prices, but OPEC's influence in the world oil market is shrinking rapidly as new supplies in non-OPEC countries are discovered and developed.

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