Sunday, April 30, 2006

Who sets gas prices?

There's a little white lie going around about gas and oil prices -- the lie says that international commodities markets, and the traders who work for them, set these prices and that the oil companies just have to make due with whatever price is set.

It's a good lie because it's just a little bit true. Yes, international commodities traders do set prices.

But international oil companies are part of that market. All of them have their own trading desks. They also place many of the orders that brokers at other trading desks execute. Oil companies don't just simply extract oil and ship it to end markets. Once they have the oil, they'll often trade it by selling it to other companies. They're as much into the commodities trading game as they are into turning the commodities into end products. At the moment, the oil companies would love for people to believe that they're just selling their products at a price set by an independent market. But don't believe it. m ExxonMobil is not operating on the whims of traders at Goldman Sachs. Not even for a second.


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