As gas prices rise and fall seemingly on a daily basis lately, it might seem like the shift in price is totally arbitrary. After all, what can happen during one weekend to make gas go from $3.69 to $3.09 and back up to $3.36? A complex set of transactions has to take place before the price of gas is calculated, and The Consumerist has broken it down for us.
From The Consumerist:
The Three Markets: Contract, Spot and Futures
Both oil and gas are traded on three markets: the contract market, the spot market, and the futures market. Each is influenced by different factors and impacts the price of gas at different stages of production. Unlike the futures market, the contract and spot markets are not the kind of markets found on Wall Street; they are informal networks of businesspeople.
The Contract Market
Though it seems like oil companies spend most of their time ruining your day by raising the price of gas, their primary business is exploration. Once an oil company finds a field and coaxes it into producing crude, it takes that unrefined oil and sells to refiners. The vast majority of oil is sold by contracts. A veritable orgy of contracts signed between oilcompanies and dealers, oil companies and refiners, refiners and independent dealers predetermine the fate of most oil and gas.Refiners plan their purchasing and refining activity to ensure that these contracts are fulfilled. In exchanged for this privileged standing, refiners charge contract customers a premium.
Check out the article on The Consumerist for the rest, including the spot market, the futures market, refineries, gas stations, taxes, and more. It’s a fascinating look into what causes prices to fluctuate, and as described by The Consumerist, sometimes all it takes is a butterfly flapping in the wind to send gas shooting up in price halfway across the world. And remember – though you might not be able to do anything to control the price of oil, you can control how much you consume.
Link [The Consumerist]
Photo credit: Flickr user micah.d
