UC Davis Agricultural and Resource Economics

What is the Price of Oil?

Aug. 7, 2008

Oil prices first hit $100 per barrel on January 2, 2008. On that day, a single trader looking for notoriety bid $100 to buy the minimum 1,000 barrels before unloading the position immediately for a small loss. This trader did not physically take possession of any oil and, being a floor trader on the New York Mercantile Exchange (NYMEX), did not have the capacity to take possession of 1,000 barrels of oil. How do NYMEX futures prices relate to prices of physical barrels of oil in world markets, and how do they relate to the price of gasoline at California pumps?

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