How is the market price established for crude oil?
Dear Cecil: We’re all taught in B-school that market prices are determined by supply and demand. I can’t for one minute believe this is true of crude oil prices. Demand appears to be static (that is, static at a given moment, although steadily increasing with time) and not affected by price at all. China isn’t going to buy incrementally less oil as the price goes up. So how is the market price actually determined? — Jason, Atlanta Cecil replies: Uh, it’s determined by supply. And demand. Just like they taught you in business school, evidently at too theoretical a level. Guess it’s time for the post-grad course in reality. Pull up a chair. There are two ways to buy oil — first, by entering into a long-term contract to get regular deliveries, and second, by buying oil when you want it at the current price in the so-called spot market. Through the 1970s most oil on the international market was bought on long-term contracts, which meant prices didn’t fluctuate much. Sure, you had that litt
