Who sets crude oil prices?

Oct 04, 2005 02:00 AM

by Joseph Mann

Question: Who sets crude oil prices? The big oil companies? OPEC?

Answer: At different stages of our history, they both did. Even today, the Organization of Petroleum Exporting Countries often influences prices by producing more or less crude oil, or by announcing it will raise or lower production.
Some people will never be convinced, but it's the petroleum market, with its volatility and sometimes crazy gyrations, that determines crude oil prices.

Big oil companies lost their power to control prices partly because of antitrust legislation, and mostly because OPEC began setting prices for its oil in the early 1970s.
OPEC members took control of huge crude oil reserves when they nationalized the operations of companies like Exxon, Royal Dutch Shell, Mobil and Gulf. By the early 1980s, though, OPEC nations began losing control of pricing power and the market took over.

Every day, traders, buyers and sellers of oil, evaluate supply and demand, look at the outlook foroil producers and consumers, analyse political and economic risks, and look for any news that could impact the market, such as a hurricane heading toward the Gulf of Mexico.
Using sophisticated mathematical models, the day's news, rumours and gut feelings, they bid crude prices up or down.

Source: businessnews@sun-sentinel.com
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