I hate being in a different timezone to you yanks; I always miss out on the good discussion lol
The oil price fluctuates generally because of supply and demand, in a structural sense. You can look at this in two ways. One: Governments buy oil from the extractors/refiners to hold in reserves and then distribute to their citizens. Or, two: companies within these countries purchase from extractors for refinement, manufacture, etc. So; at no one time does the market "clear" per se - there is always excess capacity otherwise the price would fluctuate even more than it does at present. An example probably best illustrates this.
During the GFC, oil prices went from $150 per barrel to around $35 (this is for Brent, the US-derived benchmark). If the market is driven wholly by supply and demand, one would only be able to explain this ridiculously huge drop in price as a ridiculously huge drop in demand. Now I was still studying when this all went down, but I dare say that the world did not magically drop its consumption of oil to 20% of its pre-GFC levels. It would be explained by an
at the margin drop in demand - countries and companies didn't need to purchase as much oil due to a slight reduction in demand, and they just whittled down their stockpiles. This is where the waters get muddied a bit in terms of the market for oil. Speculators control prices at the margin (ie, the swings and roundabouts that get seen on a daily basis), but in a structural sense, prices are controlled by much bigger entities such as corporations and governments.
Now that we are seeing a more sustained recovery in the developed world, who command a fair chunk of global demand, the oil price is
structurally tracking higher - to, say, $90-$100 a barrel. The swings that are being seen over the past few weeks are more to do with speculators trying to make a quick buck over "uncertainty" created in the Middle East. IDK what Brent is fetching today, but my educated guess would be that it dropped after there was no real incident in Saudi Arabia on their Day of Rage.
My final point would be that oil is almost never purchased at the spot price, that price exists almost purely for traders. Its more of a rail that indicates current trends.
The fact that oil permiates almost the entirity of a modern economy (petrol, heating oil, plastics, lubricants etc) is why people get so worried when there is spikes in prices. It causes inflationary pressures, assuming entities who control prices have enough market power to pass increased costs on.
You should listen to me, I'm a whale biologist.
Topic: Protesting Gas Prices (Read 3153 times)
