Publications: The Petroleum Economics Monthly

The Determination of Crude Oil Prices (July 2014)


The processes that determine the price of petroleum products as well as crude are not well understood. Most individuals writing on the subject assume that changes in crude prices govern changes in product prices. There is also a widely held belief that crude price movements result primarily from shifts in OPEC production capacity use. Our analysis here shows both views to be incorrect. We explain why the idea of crude prices setting gasoline prices does not hold through a careful examination of the changing structural relationships in the world oil market. In doing this, we debunk the second assumption—that OPEC capacity use influences oil prices—by describing in detail the real method the organization uses to affect the oil volume supplied to the global market.


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