The New World Oil Pricing System-Year 2000

Abstract

Why? Just a couple of years ago, the WTI oil price was around $10
per barrel. Much of the annual world statistical data looks fairly normal,
but the crude oil price tripled.
Our answer is that the petroleum industry has invited in the finan-
cial community to help set the future energy price. In the late eighties
and early nineties, many “points” were established where a trader could
conveniently make paper (financial) energy trades. The Industry has
created futures markets, WTI at Cushing, Oklahoma, Brent at
Rotterdam, Natural Gas at the Henry Hub in Louisiana. Fuel Oil and
Gasoline in New York harbor. Even Electricity is traded at select points
in the U.S.
These crude oil futures pricing signals are mostly based on the
industrialized nation’s current oil inventories, and on market psychol-
ogy—but certainly not long-term supply and demand trends. Today’s
paper energy traders have zero vested interests in the long-term energy
future.