Crude oil exam review questions 1 A) Explain the difference between posted price

Question

Crude oil exam review questions

1 A)   Explain the difference between posted prices and transactions in the era (especially pre-World War II) before there was a world market for crude oil with market transactions. Why might it be nonsensical to treat posted prices as transactions prices in a quantitative analysis of oil markets?

B)   Briefly describe how crude oil distillation capacity is typically quantified. Why might this measure of distillation capacity not be very meaningful?

C)   Explain the difference between posted prices and transactions in the era (especially pre-World War II) before there was a world market for crude oil with market transactions. Why might it be nonsensical to treat posted prices as transactions prices in a quantitative analysis of oil markets?

D) What features of the production technology for crude oil and the characteristics of oil demand would naturally lead to volatile market prices?

E)   When will the world run out of crude oil? When will it run out of $25 crude oil? $100 crude oil? Be sure to use comparative cost in your response.

F) List several of the world’s countries with the largest crude oil consumption. Do the same for production. Do the same for net exports and net imports.

G) Explain why crude oil is usually shipped long distances rather than final products.

H) How does composition of demand for finished products made from crude oil in Canada/US differ from most countries in the rest of the world? How does this affect the refining sector in Canada/US relative to the rest of the world?

I)   In the post-World War II era, crude oil prices fell and output increased reflecting the increasing abundance of oil. But after the early 1970s oil prices increased dramatically and output fell. Was this the result of increasing scarcity of oil as evidenced by rising production cost?

J) Crude oil is today sold under in contract markets, spot markets, and on futures exchanges. Provide an example of the type of information that is revealed in market prices.

Explanation / Answer

(A)

Posted price-posted price is the price at which a country or company has publicly announced that it will buy or sell a commodity.in the crude oil industry posted price often get established where a large quantity of crude oil moves from one nation to another.

transaction price- this is the amount which is promised to pay for transferring goods and services, except amount collected on behalf of the third parties.

some economist argues that there was no price of crude oil before world war-ll. because at that time everywhere is a disturbance and each country need money of forex so they have to sale it its resources especially gulf counties which have huge reserves of crude oil. they offer it crude oil for sale at publicly on the posted price which is the lower than the transaction price of oil.

so it is nonsensical to treat postal price as transaction price quantitative analysis of oil price.

(B) Distillation of crude oil- crude oil is the mixture of the hydrocarbons. it is a chemical engineering process. when the distillation process takes place it separates crude oil into several types of products like- gasoline, diesel, petrol, etc. the crude oil process is typically quantified because of the complexity which is involved in the process of the crude oil refining. the most important complexity is the related to the atmospheric distillation. each unit is assigned the complexity factor.there are two types of the refinery one is simple and other is complex. complexity is range from- 2 to 14 of CI scale.

capacity is typically quantified as boiling range to products.

light boiling point-<85f -produce butane and light product, 85f-185f produce gasoline,

heavy boiling point >650-1050f -heavy gas oil, >1050f residual fuel oil

so we can say that the refinery capacity is typically quantified.

measures the distillation capacity includes-

1 (EDC) equivalent distillation capacity.

2 Nelson's complexity index(NCI)

c

Competitors change pricing due to various reason. Pricing can less or more depending upon the product, market conditions, client preferences change, demand based etc.

When a firm tries to charge less it is due to

Grab the opportunity like for eg seasonal demand for flights are more during school vacations. They plan to give more value buying so as to boost the sales and to make use of this limited opportunities.
Boost demand during lean period, some airlines offer discount to meet their operational expenses. Once in a while they give discount during lean period to fill the capacity
When a firm tries to charge high

Innovation if the firm is selling a product or services which are very unique, it claims high price due to attributes it carries. So customers pays premium to get services.
Capitalize on demand, they charges high.

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