The New Global Oil Market: Understanding Energy Issues in the World Economy

By Siamack Shojai | Go to book overview

Chapter 5
Spot, Options, and Futures Oil Markets

Robert A. Biolsi

Trading in the world's oil markets in the past 15 years has changed dramatically with the advent of derivative securities for oil and other petroleum products. Prior to the 1979 Iranian revolution, much of the oil market was dominated by long-term contracts with oil companies. Efforts, particularly those by OPEC, to control the supply of oil during the 1970s led, however, to the transition from long-term deals to spot market trading. With the trend toward short-term spot trading, risk and uncertainty regarding where equilibrium prices for petroleum would go became a prominent feature of the petroleum markets. It was with the development of spot trading, along with the surrounding uncertainty in the petroleum markets during this time, that in turn led to the successful development of derivatives on petroleum products.

These derivatives include oil futures contracts that currently trade on the New York Mercantile Exchange (NYMEX), the International Petroleum Exchange in London, and the Singapore International Monetary Exchange. Each of these exchanges trades options on oil as well. In recent years, over-the-counter markets have grown dramatically in terms of Swap agreements, as well as various types of exotic options. Since their introduction in the late 1970s and early 1980s, petroleum-related commodities have become the most actively traded commodity derivatives in the world.

Paradoxically, derivative contracts on petroleum became an integral part of the oil market on the heels of an attempt to fix prices by major producing countries. As will be discussed, futures and other types of derivative products are generally designed to offset the risk of fluctuating prices. In 1979 in the aftermath of the Iranian revolution, OPEC agreed to lift oil prices to $32 per barrel. Having such a target price would typically reduce the desirability of trading futures and options, since there would seem to be little profit incentive

-51-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited page

Bookmark this page
The New Global Oil Market: Understanding Energy Issues in the World Economy
Table of contents

Table of contents

Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this book
  • Bookmarks
  • Highlights & Notes
  • Citations
/ 266

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.