Expert: William Hawk Howes - 6/12/2007

Question
i am a civil engineer/budding oil and gas journalist living in Nigeria (the world's seventh largest exporter of oil). i am wondering how exactly oil price is set based on speculation. for example, in nigeria, we are having problems with production due to the activities of militants in the nation's oil producing niger delta region. how does this and other incidences accross the globe affect the price of oil so sharply and if possible how are the effects of such events computed and manipulated to give a final price.

please be as exhaustive as possible.

thanks  

Answer
I apologize for the delay in answering. My wondrous windows system lost a .dll and crashed.
Regarding your question on pricing, I am not really up to speed on exactly how prices are set on petroleum products. I do know all the trading of oil futures is done in England. And that they (the traders) are opportunistic devils. Any unrest, natural disaster, battle, or possibly sunspot activity results in a variance in the price of petroleum. I can see no rhyme or reason for their positions on price. Here in the U.S. in the State of California we change our chemical composition of gasoline twice a year to allow for weather changes with regard to pollution due to the reaction of that composition to the weather. Now what is that? The change results in a price hike during the most traveled season of summer. Sounds like profits to me. However they do not regulate the burning off of thousands of acres of farmland in California to prepare for the next planting.
We get most of our oil from the near East and Africa (thank you)but unrest in China results in a price increase. Go figure.
What it boils down to (in my humble opinion) is how they can make the most money off of a commodity that the general public is actually not that knowledgeable about. While blaming the price variances on any happening out of the ordinary anywhere in the world. If you ask anyone in the know off the record they always answer "Because we can!"
Look at BP and the Propane world market manipulation (caught on tape), they got caught, whoops! we're sorry. So now what? not a thing. Pay a big fine? whats a big fine to a company like BP? Anyway Sorry to go on, a real sore spot with me. Good luck on your inquiry.

Hawk