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thousands of oil transactions daily

Crude oil comes in many varieties and qualities, depending on its specific gravity and sulphur content which depend on where it has been pumped from. Because there are so many different varieties and grades of crude oil, buyers and sellers have found it easier to refer to a limited number of reference, or benchmark, crude oils. Other varieties are then priced around this, according to their quality. Brent is generally accepted to be the world benchmark, although sales volumes of Brent itself are far below those of Saudi Arabian crude oils. Brent is used to price 66% of the world's internationally traded crude oil supplies. In the Gulf, Dubai crude is used as a benchmark to price sales of other regional crudes into Asia. In the United States, the benchmark is West Texas Intermediate (WTI).

This means that crude oil sales into the US are usually priced in relation to WTI. However, crude prices on the New York Mercantile Exchange (Nymex) generally refer to ‘light, sweet crude.’ This may be any of a number of US domestic or foreign crudes but all will have a specific gravity and sulphur content within a certain range. Slightly confusingly, the Organisation of Petroleum Exporting Countries (OPEC) ‐ a cartel of some of the world's leading producers ‐ has its own reference. Known as the OPEC basket price, this is an average of seven ‐ always the same seven ‐ crudes. Six of these are produced by OPEC members while the seventh, Isthmus, is from Mexico. OPEC aims to control the amount of oil it pumps into the marketplace to keep the basket price within a predetermined range. In practice, the price differences between Brent, WTI and the OPEC basket are not large. Crude prices also correlate closely with each other. Due to the nature of oil requiring extracting and refining participants commonly use futures contracts for delivery in the following month. In this type of transaction, the buyer agrees to take delivery and the seller agrees to provide a fixed amount of oil at a pre‐arranged price at a specified location.

Futures contracts are traded on regulated exchanges and are settled (paid) daily, based on their current value in the marketplace. Oil price crisis Although many experts continue to cite fundamentals are causing the price of oil to peak, this is no way explains the sudden hike in Oil prices, China and India’s demand for oil has been known since the early 1990’s as well as the worlds continuing appetite for oil, this in no way explains the sudden hike in prices. The price of oil has been on an upward trend since the beginning of the 21st century and the driving engine for this has been speculation. With all the economies that have adopted Capitalism the financial sector is the driving engine which generates wealth. However wealth is not generated by producing real goods, goods which are made in factories, people are employed and then paid a wage.

Most of the wealth generated in Capitalist nations is from the financial sector that doesn’t actually produce anything but provide a service where one can bet on the future price of items. Capitalism was named after its most prominent aspect – Capital, the accumulation of capital and making money out of money is a lethal cocktail when greed and consumption are added – all these are the basic aims Capitalism attempts to achieve. In this endeavour Capitalism promotes the securitisation (trading) of any commodity whether it is real or imagined. Originally the stock market was created to bet on the future movement of share prices as well as the performance of a company. Thereafter the derivatives market was created which is a casino where betting takes place on the movement of the stock market and in the last two decades all commodities can be speculated upon. On March 30th 1983 Nymex introduced futures in petroleum. That meant oil prices being fixed daily, determined by the give‐and‐take of Nymex traders, with buyers and sellers monitoring their computer screens worldwide. A futures contract is a promise to deliver a given quantity of a standardised commodity at a specified place and time in the future. It is a derivative, not the real thing. There are thousands of oil transactions daily, but few of these shipments are delivered. Instead, they are constantly re‐traded, based on the market price of the moment.
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