May 232008
 

Some people (like the US House) seem to not understand how oil prices are calculated. Luckily, Marketplace has a great introduction to the subject called “Who’s getting fat on higher oil prices?

Economist Philip Verleger watches the oil industry. He says the ultimate price is decided by traders in New York, London and other global markets. There are no wellheads that read out in dollar signs. Instead, producers write contracts based the prevailing price at a future date — when a Saudi shipment arrives in Houston, for example. The producer gets almost everything.

It’s the sweeter variety that’s in high demand right now, because it makes more of the more profitable diesel fuel. Verleger argues that $133-a-barrel oil won’t sell if there’s no buyer.

It has nothing to do with speculators. It has everything to do with the inability to make enough diesel fuel to meet the European, Chinese, Asian and U.S. demand.

Oil is was the lifeblood of the 20th century, and continues to be lifeblood in the 21st century. The market place is a whole lot more crowded though.

Oil is not cheap.

Oil is not expensive.

Oil is worth exactly what someone will pay for it.

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