3. Aim The aim of my presentation will be to apprise the house about the role of oil companies in facilitating the economic growth of a country, role of OCAC and how National oil companies and domestic politics exploit each other. 3
4. History of oil companies OPEC and its objectives How do NOCs and Politics effect each other Case Studies for positive and negative impacts Role of oil companies in economic development Role of OCAC Conclusion Questions Sequence 4
37. Wealth Distribution Redistributing the oil wealth of the nation to the society in general Fuel subsidies Employment policies Social welfare programs 37
77. NOCs and Politics Iran subsidized gas rate The political cost of removing subsidies Contradiction between political and economic reforms The Iran’s case Decline in efficiency of hydrocarbon sector A neo-patrimonial authoritarian Final arbiter in a fight 77
114. Spot market price effect Before 1970 After the oil crisis in 1973 Benchmark of oil price Two prices concept 114
115. Fixed price mechanism Fixed price is the pegging price made between buyer and seller Refinery to pay in 30 days after the B/L Refinery requires the buyer to pay in 5-15 days This kind of price method is rarely applied 115
Privately held companies have the goal of maximizing shareholder value. Themanagement of the company may accomplish that goal through organizingproduction so that a profit is made in the current time frame as well as in the future.They also might make investment decisions to take advantage of opportunities toraise the company’s rate of return. They also have the motivation to achieveproductive efficiency to hold down costs to enhance the profitability of any givenrevenue level. This activity is thought to benefit consumers by assuring that physicalshortages are avoided and that the good is available at the lowest price consistentwith demand and supply factors.In the oil industry, maximization of shareholder value is taken to mean that thevalue of oil resources should be maximized through managing production,exploration, and development activities to assure a functioning market. To ensurethe long-term viability of the company, reserve replacement is necessary. For thecompany to grow, it must have the ability to expand production and sales to meetdemand growth in newly developing economies as well as in developed areas.Technical efficiency in all parts of the supply chain leads to cost minimization aswell as improvements in product performance and environmental integrity.
Privately held companies have the goal of maximizing shareholder value. Themanagement of the company may accomplish that goal through organizingproduction so that a profit is made in the current time frame as well as in the future.They also might make investment decisions to take advantage of opportunities toraise the company’s rate of return. They also have the motivation to achieveproductive efficiency to hold down costs to enhance the profitability of any givenrevenue level. This activity is thought to benefit consumers by assuring that physicalshortages are avoided and that the good is available at the lowest price consistentwith demand and supply factors.In the oil industry, maximization of shareholder value is taken to mean that thevalue of oil resources should be maximized through managing production,exploration, and development activities to assure a functioning market. To ensurethe long-term viability of the company, reserve replacement is necessary. For thecompany to grow, it must have the ability to expand production and sales to meetdemand growth in newly developing economies as well as in developed areas.Technical efficiency in all parts of the supply chain leads to cost minimization aswell as improvements in product performance and environmental integrity.
Privately held companies have the goal of maximizing shareholder value. Themanagement of the company may accomplish that goal through organizingproduction so that a profit is made in the current time frame as well as in the future.They also might make investment decisions to take advantage of opportunities toraise the company’s rate of return. They also have the motivation to achieveproductive efficiency to hold down costs to enhance the profitability of any givenrevenue level. This activity is thought to benefit consumers by assuring that physicalshortages are avoided and that the good is available at the lowest price consistentwith demand and supply factors.In the oil industry, maximization of shareholder value is taken to mean that thevalue of oil resources should be maximized through managing production,exploration, and development activities to assure a functioning market. To ensurethe long-term viability of the company, reserve replacement is necessary. For thecompany to grow, it must have the ability to expand production and sales to meetdemand growth in newly developing economies as well as in developed areas.Technical efficiency in all parts of the supply chain leads to cost minimization aswell as improvements in product performance and environmental integrity.
Privately held companies have the goal of maximizing shareholder value. Themanagement of the company may accomplish that goal through organizingproduction so that a profit is made in the current time frame as well as in the future.They also might make investment decisions to take advantage of opportunities toraise the company’s rate of return. They also have the motivation to achieveproductive efficiency to hold down costs to enhance the profitability of any givenrevenue level. This activity is thought to benefit consumers by assuring that physicalshortages are avoided and that the good is available at the lowest price consistentwith demand and supply factors.In the oil industry, maximization of shareholder value is taken to mean that thevalue of oil resources should be maximized through managing production,exploration, and development activities to assure a functioning market. To ensurethe long-term viability of the company, reserve replacement is necessary. For thecompany to grow, it must have the ability to expand production and sales to meetdemand growth in newly developing economies as well as in developed areas.Technical efficiency in all parts of the supply chain leads to cost minimization aswell as improvements in product performance and environmental integrity.
Privately held companies have the goal of maximizing shareholder value. Themanagement of the company may accomplish that goal through organizingproduction so that a profit is made in the current time frame as well as in the future.They also might make investment decisions to take advantage of opportunities toraise the company’s rate of return. They also have the motivation to achieveproductive efficiency to hold down costs to enhance the profitability of any givenrevenue level. This activity is thought to benefit consumers by assuring that physicalshortages are avoided and that the good is available at the lowest price consistentwith demand and supply factors.In the oil industry, maximization of shareholder value is taken to mean that thevalue of oil resources should be maximized through managing production,exploration, and development activities to assure a functioning market. To ensurethe long-term viability of the company, reserve replacement is necessary. For thecompany to grow, it must have the ability to expand production and sales to meetdemand growth in newly developing economies as well as in developed areas.Technical efficiency in all parts of the supply chain leads to cost minimization aswell as improvements in product performance and environmental integrity.
National oil companies may be involved inredistributing the oil wealth of the nation to the society in general. Thisredistribution can be accomplished through fuel subsidies, employment policies, andsocial welfare programs among other programs. Fuel subsidies are common,reducing the price of gasoline in Venezuela to $0.11 per gallon, $0.21 per gallon inIran, and $0.64 per gallon in Saudi Arabia.7 In contrast, gasoline had an averageprice of $5.77 in Norway, one of the higher observed price levels in the world. Whilesubsidized fuel prices reduce energy prices to the general population, enhanceindustrial and transportation resources, and protect the domestic economy from thedamaging effects of volatile world petroleum prices, the downside is that they arevery expensive in terms of lost potential revenues for the national oil company. Theartificially low price encourages demand growth, corruption, inefficient use of fuels,and even arbitrage-based smuggling schemes. The expanded use of fuelsdomestically leads to reduced exports and tightens supply in world markets, leadingto higher prices in the oil-importing countries. Examples of subsidy programs withthese effects include those observed in Iran, Nigeria, and Indonesia among others
National oil companies may be involved inredistributing the oil wealth of the nation to the society in general. Thisredistribution can be accomplished through fuel subsidies, employment policies, andsocial welfare programs among other programs. Fuel subsidies are common,reducing the price of gasoline in Venezuela to $0.11 per gallon, $0.21 per gallon inIran, and $0.64 per gallon in Saudi Arabia.7 In contrast, gasoline had an averageprice of $5.77 in Norway, one of the higher observed price levels in the world. Whilesubsidized fuel prices reduce energy prices to the general population, enhanceindustrial and transportation resources, and protect the domestic economy from thedamaging effects of volatile world petroleum prices, the downside is that they arevery expensive in terms of lost potential revenues for the national oil company. Theartificially low price encourages demand growth, corruption, inefficient use of fuels,and even arbitrage-based smuggling schemes. The expanded use of fuelsdomestically leads to reduced exports and tightens supply in world markets, leadingto higher prices in the oil-importing countries. Examples of subsidy programs withthese effects include those observed in Iran, Nigeria, and Indonesia among others
Although the results vary with the demographic of thecountry, national oil companies can be viewed as jobs programs for the domesticeconomy. Table 4 shows that private oil companies have varying levels ofemployment for each one million barrels of oil equivalent produced, but the degreeof variation is higher for the national oil companies. The data shows Saudi Aramcowith the lowest ratio of employees to oil produced. The low ratio may be the resultof efficiency within the organization, the large quantities of oil produced, or it mayreflect the small population and overall wealth of Saudi Arabia that minimizes theneed for a jobs program. The two Chinese national oil companies, CNOOC andPetroChina, are near the lowest and also the highest in terms of number of employeesper barrel of oil equivalent produced. This outcome is likely the result of differentoperational requirements, or different treatment of the companies by the government.
Although the results vary with the demographic of thecountry, national oil companies can be viewed as jobs programs for the domesticeconomy. Table 4 shows that private oil companies have varying levels ofemployment for each one million barrels of oil equivalent produced, but the degreeof variation is higher for the national oil companies. The data shows Saudi Aramcowith the lowest ratio of employees to oil produced. The low ratio may be the resultof efficiency within the organization, the large quantities of oil produced, or it mayreflect the small population and overall wealth of Saudi Arabia that minimizes theneed for a jobs program. The two Chinese national oil companies, CNOOC andPetroChina, are near the lowest and also the highest in terms of number of employeesper barrel of oil equivalent produced. This outcome is likely the result of differentoperational requirements, or different treatment of the companies by the government.
Although the results vary with the demographic of thecountry, national oil companies can be viewed as jobs programs for the domesticeconomy. Table 4 shows that private oil companies have varying levels ofemployment for each one million barrels of oil equivalent produced, but the degreeof variation is higher for the national oil companies. The data shows Saudi Aramcowith the lowest ratio of employees to oil produced. The low ratio may be the resultof efficiency within the organization, the large quantities of oil produced, or it mayreflect the small population and overall wealth of Saudi Arabia that minimizes theneed for a jobs program. The two Chinese national oil companies, CNOOC andPetroChina, are near the lowest and also the highest in terms of number of employeesper barrel of oil equivalent produced. This outcome is likely the result of differentoperational requirements, or different treatment of the companies by the government.
National oil companies are also used by theirgovernments as tools in the overall process of economic development. In somenations, the petroleum industry is the first large economic sector opened to the worldeconomy. As such, the petroleum industry may be the first to introduce concepts ofinternational investment contract and property law, as well as accepted accountingand financial standards, all necessary for economic development to proceed. Theindustry may serve as a conduit for technology transfers to the larger economy. Localcontent rules may be imposed to ensure the development of ancillary servicebusinesses to spread development dollars. The national oil company may also berequired to supply subsidized fuels to industries targeted in the nations’ developmentplans.An example of the development responsibilities of a national oil company is inKazakhstan, where KMG has clearly stated its aims. These objectives includeintegrating Kazakhstan into the world economy and ensuring that KMG’s growth anddevelopment translates into more general economic growth in the nation
National oil companies are also used by theirgovernments as tools in the overall process of economic development. In somenations, the petroleum industry is the first large economic sector opened to the worldeconomy. As such, the petroleum industry may be the first to introduce concepts ofinternational investment contract and property law, as well as accepted accountingand financial standards, all necessary for economic development to proceed. Theindustry may serve as a conduit for technology transfers to the larger economy. Localcontent rules may be imposed to ensure the development of ancillary servicebusinesses to spread development dollars. The national oil company may also berequired to supply subsidized fuels to industries targeted in the nations’ developmentplans.An example of the development responsibilities of a national oil company is inKazakhstan, where KMG has clearly stated its aims. These objectives includeintegrating Kazakhstan into the world economy and ensuring that KMG’s growth anddevelopment translates into more general economic growth in the nation
National oil companies are also used by theirgovernments as tools in the overall process of economic development. In somenations, the petroleum industry is the first large economic sector opened to the worldeconomy. As such, the petroleum industry may be the first to introduce concepts ofinternational investment contract and property law, as well as accepted accountingand financial standards, all necessary for economic development to proceed. Theindustry may serve as a conduit for technology transfers to the larger economy. Localcontent rules may be imposed to ensure the development of ancillary servicebusinesses to spread development dollars. The national oil company may also berequired to supply subsidized fuels to industries targeted in the nations’ developmentplans.An example of the development responsibilities of a national oil company is inKazakhstan, where KMG has clearly stated its aims. These objectives includeintegrating Kazakhstan into the world economy and ensuring that KMG’s growth anddevelopment translates into more general economic growth in the nation
National oil companies are also used by theirgovernments as tools in the overall process of economic development. In somenations, the petroleum industry is the first large economic sector opened to the worldeconomy. As such, the petroleum industry may be the first to introduce concepts ofinternational investment contract and property law, as well as accepted accountingand financial standards, all necessary for economic development to proceed. Theindustry may serve as a conduit for technology transfers to the larger economy. Localcontent rules may be imposed to ensure the development of ancillary servicebusinesses to spread development dollars. The national oil company may also berequired to supply subsidized fuels to industries targeted in the nations’ developmentplans.An example of the development responsibilities of a national oil company is inKazakhstan, where KMG has clearly stated its aims. These objectives includeintegrating Kazakhstan into the world economy and ensuring that KMG’s growth anddevelopment translates into more general economic growth in the nation
National oil companies can also be used by their nationalgovernments as a tool to achieve foreign policy goals, leading to direct alliances aswell as national oil company to national oil company ties that can pave the way topolitical relationships. Oil is a strategic commodity in the world economy, and itsproduction and use can foster strategic relationships. For example, Saudi Aramco’sdecision to raise oil output in the wake of the Iraqi invasion of Kuwait, and China’soil-based relationships with Iran, Venezuela, Russia, and others can be viewed aspartly politically motivated.Perhaps the most recent and assertive example of national oil companies beingtied to the geopolitical aims of their government is PDVSA and President Chavezand his Bolivarian Revolution.10 Some believe that Chavez sees the United Statesand its promotion of democracy and global markets as a threat to his revolution. Tocounter what Chavez sees as U.S. expansionism, he is using the promise of economicaid, joint energy projects, and favorable oil pricing to gain influence in LatinAmerica, the Caribbean, and other areas. PDVSA plays an important role in thesepolicies. Recently, the Chavez government has completed deals with Ecquador,Bolivia, Argentina, Nicaragua, and others.11Iran has used the possibility of oil cut-offs to the West as a threat, and possibledeterrent, in the controversy over its pursuit of nuclear weapons. Russia hasinterrupted natural gas deliveries to Europe as a result of its conflicts with membersof the former Soviet Union over supply prices and transport fees.
National oil companies can also be used by their nationalgovernments as a tool to achieve foreign policy goals, leading to direct alliances aswell as national oil company to national oil company ties that can pave the way topolitical relationships. Oil is a strategic commodity in the world economy, and itsproduction and use can foster strategic relationships. For example, Saudi Aramco’sdecision to raise oil output in the wake of the Iraqi invasion of Kuwait, and China’soil-based relationships with Iran, Venezuela, Russia, and others can be viewed aspartly politically motivated.Perhaps the most recent and assertive example of national oil companies beingtied to the geopolitical aims of their government is PDVSA and President Chavezand his Bolivarian Revolution.10 Some believe that Chavez sees the United Statesand its promotion of democracy and global markets as a threat to his revolution. Tocounter what Chavez sees as U.S. expansionism, he is using the promise of economicaid, joint energy projects, and favorable oil pricing to gain influence in LatinAmerica, the Caribbean, and other areas. PDVSA plays an important role in thesepolicies. Recently, the Chavez government has completed deals with Ecquador,Bolivia, Argentina, Nicaragua, and others.11Iran has used the possibility of oil cut-offs to the West as a threat, and possibledeterrent, in the controversy over its pursuit of nuclear weapons. Russia hasinterrupted natural gas deliveries to Europe as a result of its conflicts with membersof the former Soviet Union over supply prices and transport fees.
National oil companies can also be used by their nationalgovernments as a tool to achieve foreign policy goals, leading to direct alliances aswell as national oil company to national oil company ties that can pave the way topolitical relationships. Oil is a strategic commodity in the world economy, and itsproduction and use can foster strategic relationships. For example, Saudi Aramco’sdecision to raise oil output in the wake of the Iraqi invasion of Kuwait, and China’soil-based relationships with Iran, Venezuela, Russia, and others can be viewed aspartly politically motivated.Perhaps the most recent and assertive example of national oil companies beingtied to the geopolitical aims of their government is PDVSA and President Chavezand his Bolivarian Revolution.10 Some believe that Chavez sees the United Statesand its promotion of democracy and global markets as a threat to his revolution. Tocounter what Chavez sees as U.S. expansionism, he is using the promise of economicaid, joint energy projects, and favorable oil pricing to gain influence in LatinAmerica, the Caribbean, and other areas. PDVSA plays an important role in thesepolicies. Recently, the Chavez government has completed deals with Ecquador,Bolivia, Argentina, Nicaragua, and others.11Iran has used the possibility of oil cut-offs to the West as a threat, and possibledeterrent, in the controversy over its pursuit of nuclear weapons. Russia hasinterrupted natural gas deliveries to Europe as a result of its conflicts with membersof the former Soviet Union over supply prices and transport fees.
National oil companies can also be used by their nationalgovernments as a tool to achieve foreign policy goals, leading to direct alliances aswell as national oil company to national oil company ties that can pave the way topolitical relationships. Oil is a strategic commodity in the world economy, and itsproduction and use can foster strategic relationships. For example, Saudi Aramco’sdecision to raise oil output in the wake of the Iraqi invasion of Kuwait, and China’soil-based relationships with Iran, Venezuela, Russia, and others can be viewed aspartly politically motivated.Perhaps the most recent and assertive example of national oil companies beingtied to the geopolitical aims of their government is PDVSA and President Chavezand his Bolivarian Revolution.10 Some believe that Chavez sees the United Statesand its promotion of democracy and global markets as a threat to his revolution. Tocounter what Chavez sees as U.S. expansionism, he is using the promise of economicaid, joint energy projects, and favorable oil pricing to gain influence in LatinAmerica, the Caribbean, and other areas. PDVSA plays an important role in thesepolicies. Recently, the Chavez government has completed deals with Ecquador,Bolivia, Argentina, Nicaragua, and others.11Iran has used the possibility of oil cut-offs to the West as a threat, and possibledeterrent, in the controversy over its pursuit of nuclear weapons. Russia hasinterrupted natural gas deliveries to Europe as a result of its conflicts with membersof the former Soviet Union over supply prices and transport fees.
National oil companies can also be used by their nationalgovernments as a tool to achieve foreign policy goals, leading to direct alliances aswell as national oil company to national oil company ties that can pave the way topolitical relationships. Oil is a strategic commodity in the world economy, and itsproduction and use can foster strategic relationships. For example, Saudi Aramco’sdecision to raise oil output in the wake of the Iraqi invasion of Kuwait, and China’soil-based relationships with Iran, Venezuela, Russia, and others can be viewed aspartly politically motivated.Perhaps the most recent and assertive example of national oil companies beingtied to the geopolitical aims of their government is PDVSA and President Chavezand his Bolivarian Revolution.10 Some believe that Chavez sees the United Statesand its promotion of democracy and global markets as a threat to his revolution. Tocounter what Chavez sees as U.S. expansionism, he is using the promise of economicaid, joint energy projects, and favorable oil pricing to gain influence in LatinAmerica, the Caribbean, and other areas. PDVSA plays an important role in thesepolicies. Recently, the Chavez government has completed deals with Ecquador,Bolivia, Argentina, Nicaragua, and others.11Iran has used the possibility of oil cut-offs to the West as a threat, and possibledeterrent, in the controversy over its pursuit of nuclear weapons. Russia hasinterrupted natural gas deliveries to Europe as a result of its conflicts with membersof the former Soviet Union over supply prices and transport fees.
Broadly based energy security is among the objectives ofthe national oil companies. Security on the demand side means not allowing oneconsumer to become critical to the national oil company. For example, PDVSA hasrecently tried to direct its oil sales away from the United States in the hope ofreducing U.S. economic influence, and as a way to develop other consuming marketsfor Venezuelan crude oil. However, in some cases technological factors make thisstrategy difficult. A long-standing relationship between an oil exporter and importermay lead to the investment in more-or-less specialized facilities that facilitate the useof the exporting nation’s oil. In the United States-Venezuela case, Venezuelaproduces relatively heavy crude oils, especially from the Orinoco basin projects. TheUnited States has refineries designed to use this crude oil. As Venezuela seeks todiversify its customer base, it must find locations with refinery capacity suited to itscrude oil.In other cases, energy security objectives for national oil companies are definedin terms of security of supply. Supply security objectives in the well-functioningworld oil market are usually defined in terms of the diversity of producers and thesecurity of oil supply lanes. For some countries and their national oil companies, oilsupply security means the ownership, or exclusive rights to, desired supplies of oil.Some analysts have identified China as a nation following this type of strategy. Theattempted purchase of Unocal, the U.S. based oil and natural gas company, by
Broadly based energy security is among the objectives ofthe national oil companies. Security on the demand side means not allowing oneconsumer to become critical to the national oil company. For example, PDVSA hasrecently tried to direct its oil sales away from the United States in the hope ofreducing U.S. economic influence, and as a way to develop other consuming marketsfor Venezuelan crude oil. However, in some cases technological factors make thisstrategy difficult. A long-standing relationship between an oil exporter and importermay lead to the investment in more-or-less specialized facilities that facilitate the useof the exporting nation’s oil. In the United States-Venezuela case, Venezuelaproduces relatively heavy crude oils, especially from the Orinoco basin projects. TheUnited States has refineries designed to use this crude oil. As Venezuela seeks todiversify its customer base, it must find locations with refinery capacity suited to itscrude oil.In other cases, energy security objectives for national oil companies are definedin terms of security of supply. Supply security objectives in the well-functioningworld oil market are usually defined in terms of the diversity of producers and thesecurity of oil supply lanes. For some countries and their national oil companies, oilsupply security means the ownership, or exclusive rights to, desired supplies of oil.Some analysts have identified China as a nation following this type of strategy. Theattempted purchase of Unocal, the U.S. based oil and natural gas company, by
Broadly based energy security is among the objectives ofthe national oil companies. Security on the demand side means not allowing oneconsumer to become critical to the national oil company. For example, PDVSA hasrecently tried to direct its oil sales away from the United States in the hope ofreducing U.S. economic influence, and as a way to develop other consuming marketsfor Venezuelan crude oil. However, in some cases technological factors make thisstrategy difficult. A long-standing relationship between an oil exporter and importermay lead to the investment in more-or-less specialized facilities that facilitate the useof the exporting nation’s oil. In the United States-Venezuela case, Venezuelaproduces relatively heavy crude oils, especially from the Orinoco basin projects. TheUnited States has refineries designed to use this crude oil. As Venezuela seeks todiversify its customer base, it must find locations with refinery capacity suited to itscrude oil.In other cases, energy security objectives for national oil companies are definedin terms of security of supply. Supply security objectives in the well-functioningworld oil market are usually defined in terms of the diversity of producers and thesecurity of oil supply lanes. For some countries and their national oil companies, oilsupply security means the ownership, or exclusive rights to, desired supplies of oil.Some analysts have identified China as a nation following this type of strategy. Theattempted purchase of Unocal, the U.S. based oil and natural gas company, by
Broadly based energy security is among the objectives ofthe national oil companies. Security on the demand side means not allowing oneconsumer to become critical to the national oil company. For example, PDVSA hasrecently tried to direct its oil sales away from the United States in the hope ofreducing U.S. economic influence, and as a way to develop other consuming marketsfor Venezuelan crude oil. However, in some cases technological factors make thisstrategy difficult. A long-standing relationship between an oil exporter and importermay lead to the investment in more-or-less specialized facilities that facilitate the useof the exporting nation’s oil. In the United States-Venezuela case, Venezuelaproduces relatively heavy crude oils, especially from the Orinoco basin projects. TheUnited States has refineries designed to use this crude oil. As Venezuela seeks todiversify its customer base, it must find locations with refinery capacity suited to itscrude oil.In other cases, energy security objectives for national oil companies are definedin terms of security of supply. Supply security objectives in the well-functioningworld oil market are usually defined in terms of the diversity of producers and thesecurity of oil supply lanes. For some countries and their national oil companies, oilsupply security means the ownership, or exclusive rights to, desired supplies of oil.Some analysts have identified China as a nation following this type of strategy. Theattempted purchase of Unocal, the U.S. based oil and natural gas company, by
Broadly based energy security is among the objectives ofthe national oil companies. Security on the demand side means not allowing oneconsumer to become critical to the national oil company. For example, PDVSA hasrecently tried to direct its oil sales away from the United States in the hope ofreducing U.S. economic influence, and as a way to develop other consuming marketsfor Venezuelan crude oil. However, in some cases technological factors make thisstrategy difficult. A long-standing relationship between an oil exporter and importermay lead to the investment in more-or-less specialized facilities that facilitate the useof the exporting nation’s oil. In the United States-Venezuela case, Venezuelaproduces relatively heavy crude oils, especially from the Orinoco basin projects. TheUnited States has refineries designed to use this crude oil. As Venezuela seeks todiversify its customer base, it must find locations with refinery capacity suited to itscrude oil.In other cases, energy security objectives for national oil companies are definedin terms of security of supply. Supply security objectives in the well-functioningworld oil market are usually defined in terms of the diversity of producers and thesecurity of oil supply lanes. For some countries and their national oil companies, oilsupply security means the ownership, or exclusive rights to, desired supplies of oil.Some analysts have identified China as a nation following this type of strategy. Theattempted purchase of Unocal, the U.S. based oil and natural gas company, by
The current oil futures trading is evolved intricately from spot transaction to forward trading and finally to futures trading, the spot market price is still important to the international oil price system.Spot market was served as a tool for Majors to adjust oil surplus and deficiency and exchange oil products between each other Spot trading only amount to less than 5% of total international oil trading and the spot price normally reflects the price of term surplusThe spot trading increased gradually and the oil spot market is no longer a residual market but became a marginal market which reflects the production and refinery cost of crude oil, and its profitThe spot price has already become the benchmark for oil companies and the government of oil-consuming countries to make the oil policy.At the same time, some term contract began to relate to spot marketThere are two prices in oil spot market one is real spot trading price the other price is the evaluation made by some organizations through the research and track to the price level in the market
The price mechanism for oil products varies according to different types and their different specifications But still mainly traded as “floating price” which isbased on a formula.There are several kinds of pricing units in different areas such as metric tons, U.S. barrels, gallons and litersThe pricing basis is mainly quotations published by information agents which is accepted by both parties
The pricing period for oil products are mainly five days around Bill of Lading date, more specifically they are two days immediately prior tothe B/L date,the B/L date, and two days immediately after the B/L date. The final price falls on the average of the five mean quotationsThere are also some special pricing methods if mutually agreedThe trade for oil products is more active than crudes and with multiple modes