The Role of Financial Markets in the Pricing of Crude Oil

Download or read book The Role of Financial Markets in the Pricing of Crude Oil written by Stephanie Leigh Sheldon and published by . This book was released on 2016 with total page 165 pages. Available in PDF, EPUB and Kindle. Book excerpt: The debate over the causes of the path of the price of oil over the twenty-first century has failed to address the method of oil pricing. The thesis guiding this dissertation is that the crude oil pricing method constrains the influence of financial investors in oil futures via (1) a two-part price system, (2) the role of both spot and contract markets, and (3) the connections between the futures market and the specific physical market related to the futures contract. Market participants construct the pricing method and adjust it through historical time and context, similar to methods of pricing found in manufacturing and retail markets. The details of the physical oil market, grounded in the pricing method, leads to the application in chapter 5. The chapter examines the behavior of prices for WTI and Brent-related futures markets as well as for one light sweet and one medium sour crude oil at the US Gulf coast. Data pertinent to conditions in the physical oil market includes levels and quality of production and imports to the US, changing environmental standards, US refining complexity, demand growth and others clearly supports the path of these prices. The following illustrates the limits placed on financial investors in determination of the price of oil through the method of pricing and the conditions in the physical oil market.