Oil Markets Essay Example | Topics and Well Written Essays - 1000 words

Oil Markets - Essay ExampleThe most important and active exchanges where such transactions take localise are the New York Mercantile Exchange and the International Petroleum Exchange, London. status and futures prices are transparent, and are available on the internet and a host of other media sources.All corporeal trade in anoint is through contract arrangements that are formal contracts drawn up between the buyer and the seller for a specified quantity and quality of oil delivered at a fixed place and time and at a fixed price. Usu eithery the spot and futures prices benchmark the contract price, to explain, the delivered price of the oil depends upon the spot market at the concord time of delivery plus or minus an agreed amount depending upon the other conditions of the contract, such as credit terms, quantity and quality. In the US, some sale of the national intersectionion of oil is at a Posted Price, a different method of pricing of the indigenous product (Transactions). Futures prices of crude are $ 69.59 per barrel for May 2006 delivery and $ 70.22 per barrel, for June delivery. These are the closing prices of May 8th traffic on the NYMEX for Brent crude (Trading Quotes).2.Some oil producing nations have formed a cartel to ascendency the production, shipments and prices of crude. This organisation called the Organisation of Petroleum Exporting Countries (OPEC). Appendix-1 shows the countries that form part of OPEC and their average production over the then(prenominal) three years (2003-05). Appendix-2 provides expatiate of countries that form significant quantities of crude but who are no a part of the OPEC and their average production over the past three years (2003-05). Appendix 3 gives details of the major Exporters, Consumers and Importers of Oil (International Petroleum Monthly). Saudi Arabia, Russia, Iran and North Sea operations are the major producers of oil. The US is the largest consumer and importer of oil followed by China and Jap an.3.The world oil market is a Homogenous Co-operative Oligopoly. A coarse definition of an oligopoly is a monopoly of many. The distinguishing characteristic of an oligopoly is that there are a few mutually interdependent firms that produce either identical products (homogeneous oligopoly) or heterogeneous products (differentiated oligopoly) (Bookrags). Oil has no substitute. The consumer, has no alternative for the product, has no room of increasing total utility and with the supply and prices being controlled by a handful of suppliers has absolutely no way of influencing prices. This is a classic case of a monopolistic market. As is evident from the figure presented in Appendix 3, the largest exporters in the world, other than Russia, Norway, Mexico, Kazakhstan, and Qatar, are a part of the OPEC. The OPEC decides upon the levels of production and exports all with a suasion to control prices by maintaining a scarcity in the market. The non-availability of natural resources rest ricts entry of new players into the market. Since the product of all the players is essentially the same - crude petroleum oil, with only small variations in quality, the term Homogenous Oligopoly applies abruptly to this