What Sets Oil Prices - Essay Example

Oil may be released from the reserves to balance out fluctuated prices depending on country policies.

Indices may be used as indicators of prices, but do not necessarily determine the price of oil as there is no law in the determination of oil prices. Oil price fluctuation affects countries differently. Countries that export oils benefit most when the prices of oil increase and vise versa. Large oil consumers like the United States and china may benefit when the prices of oil go down since the large corporations that consume oil make more profits (Austin, “What sets oil prices”). Politics also play part in the oil price indices determination.

Contracts also play a key role in the determination of oil prices. Oil buyers pay for oil differently as some oils are quicker and cheaper to refine and transport. The location of the source of the oil matters on the transport cost considerations. Individual contracts remain the yardstick to the determination of oil prices rather than the set global indices (Austin, “What sets oil prices”). The terms of the contracts, as well as the side benefits of a deal, remain superior in the determination of individual oil prices. Purchasing companies and the selling companies only use the oil price indices as the benchmark, but not the determinant in oil pricing.