Thursday, May 1, 2008

Gasoline Prices

I had a crazy thought the other day. I got to thinking about the fact that gasoline prices are going up because the price of crude oil is going up on the commodities market. I'm not very well versed in the whys and wherefores of the market, but as I understand it a buyer will bid on a commodity, in this case crude oil, for delivery at some future date. Then the folks who need the commodity will pay the bidders the price and take delivery of the commodity (oil) and put it to use, i.e. refine it. The original buyers may not even see the oil or actually have it in their possession, rather they have a piece of paper that says they own it. If the value has decreased, then they must make up the shortfall when they sell it. All well and good, but this is what puzzles me. Most of the crude oil available for refining comes from the companies that drilled for it and pumped it out of the ground. Those companies are the oil companies in partnership with the countries where the oil is found. So, does this mean that the oil companies sell the crude oil on the commodities market to some broker and then buy it back from him at a later date? If the oil company owns the oil to begin with why would they sell it only to buy it back at a later date? Or are they the brokers too? Do they sell it to themselves and then buy it back from themselves in order to refine it? Just asking...

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