Having been in the physical trading of commodities on and off for over a decade now, I am stunned to see how many people – mostly brokers – who claim to trade oil derivatives know so very little if any about how crude oil prices are evaluated.
So for the sake of clarifying it all to everyone concerned, I thought of sharing this blog with all our readers in the hope they become more educated brokers and traders alike.
For all of those of you who still don’t know, there have been successive price regimes since the beginnings of the 20th Century.
1. Between 1930 and 1970, it was the so called “seven sisters pricing regime”, where the prices where controlled and posted by oil companies.
2. Then, until 1985, the prices were controlled by the producing countries, a period known as the OPEC pricing regime.
3. After a short period of netback pricing regime (crude oil price was tied to the price of refined products), the reference pricing regime was adopted. This is the system that we still use today.
Read More: Evaluating Crude Oil Prices