Oil Prices 1 Percent Less

OIl Prices One Percent Less

With the news that the price of oil was fixed at 1 percent less in the first week of January, the lowest price in the last twelve months as a result of the decrease in demand for oil, the question arises who controls oil prices?

The United States Energy Department stated that last week that supplies of gasoline increased by 6.2 million barrels.  This news far exceeded the expectations of analysts surveyed by McGraw Hill, one of the leading sources concerning ratings, benchmarks and analytics in the global and commodity markets.  For consumers the average price of gasoline at the pump remained at $3.31 a gallon.  The news that the price of oil fell by one percent does not necessarily imply that the price of a tank of gas will be reduced from a former, higher set, price.

World oil production is partially decided by the OPEC, the intergovernmental organization managing twelve oil-producing countries.  Responsible for 40 percent of the world’s oil production, OPEC sets quotas, giving a number of permitted barrels of oil that can be produced in a day.  Commodity traders bid on oil future contracts in which a price is set on the cost of a barrel of oil.  Traders base their bets on analytic information such as McGraw Hill provides and therefore, in part, control oil prices, taking the risk that the prices that they set in the future contracts will be realized or perhaps, not realized.  Either way, there is a possibility to collect money depending on the structure of the deal the stock market trader sets up.

Information which is not a constant factor in making such deals is the quota set by OPEC (this can change although the current ceiling of 30 million barrels a day has not been altered since 2011) the level of oil reserves which counterbalance the oil supply if prices rise too steeply, and oil demand. This last factor is known to increase in the summer time when the summer driving season is in effect.  One source of information about the expected levels of oil demand in summer is provided by the AAA.  The news that the demand in oil decreased during this last month reflects the habitual rise occurring in the summer, and it is not a surprise to learn that the same decrease in demand for oil occurred at about the same time last year in the winter. Oddly enough weather becomes another factor in oil pricing.  The prices and earnings of commodity traders can be affected by weather, namely harsh winters can increase because of potential home heating oil use.

Greater oil supplies do not indicate that the price of oil will drop, not even 1 percent, because the OPEC’s charter is to ensure stable oil markets and guide the petroleum policies of its member countries. What leads to a one percent decrease in oil prices ?  Optimistic estimations of the fabled peak production of petroleum, the mountain before the chasm, rumor that this may possibility occur after 2020, until then the price of a barrel of oil is controlled by the producers and the results of the gambles made in the market, in this case the oil price was lessened by one percent this past week.  The price of a tank of gas at the pump is another arm of the oil market.

By Persephone Abbott

Sources:

The Washington Post

Oil Price.Net

About.com

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