Why isn't the price much higher and/or oil shortages?

[MacG]

Does 100% of oil traded in the world go through the new york / london exchanges?

Oil traded or oil produced? I would suspect that most of the world's oil isn't traded in the NY/LON exchanges. Much is consumed in the country of production and never sees the open market, much is traded unilaterally between friends and again never sees the world market...

I've often wondered what the global average price paid for a barrel of oil is since it's certainly a lot less that the market price for we see on NYMEX.

This is very interesting and important, I belive. The "oil price" might not be such a great indicator. It is possible to imagine a situation with local and intermittent shortages despite a relatively benign "oil price". This might be what we see in southern Africa right now.

[RevdTess]

Does 100% of oil traded in the world go through the new york / london exchanges?

Chris is correct above when he says that most oil is not traded on exchanges. Most oil is traded privately between large oil majors, national governments, and global investment banks as these are the only organisations that have sufficiently good credit to trade the vast sums involved.

[RevdTess]

This is very interesting and important, I belive. The "oil price" might not be such a great indicator. It is possible to imagine a situation with local and intermittent shortages despite a relatively benign "oil price". This might be what we see in southern Africa right now.

True. Remember that physical oil (as opposed to 'financial' oil) is traded in large discrete cargoes of hundreds of thousands of barrels, and the highest bidder takes all they want, which can quite easily leave shortages in poorer regions.

Equally importantly, some governments subsidise fuel costs, and this leads to shortages when companies or individuals realise they can buy up or withhold cheap supplies and export or supply the black market at much higher prices.

China for example has to limit how much gasoline its oil companies are allowed to export, because Sinopec et al lose money by supplying price-capped Chinese markets. It leads to some horrible inefficiencies and shortages, but if their population *can* get hold of fuel, it tends to be cheap.

[Joe]

This is a pretty interesting article on the subject of markets, futures etc...

should the crude oil market switch from backwardation to contago without a significant decline in current prices (suggesting that current supply problems have not been solved), that will suggest that the "market" has accepted the Peak Oil hypothesis that oil supplies will increasingly decline in the future, and hence that the commodity will get increasingly expensive. For this reason, I believe that the switch from backwardation to contango will be the market indicator that the peak in crude oil production is not only here, but perhaps more importantly that it is accepted by the broader financial community...

Read the comments too - the one from Steven Lagavulin is especially interesting.

[Steve]

As Tess says, the reason oil hasn't traded higher is because at the moment more supply is coming on line than is being depleted.

Also, the markets are working on two assumptions:-

1 - Analysts (including peak oilers) say that providing depletion doesn't accelerate speed up 1 million barrels per day extra will be coming on line in the next four years taking production up towards 90 million barrels per day providing refineries can process it.

2 - They believe the nonsense that the saudis & exxon are putting out about how much oil is still out there.

The key moment is when market realisation kicks in, and the time is near (which is why gold,silver, copper and the rest are being snapped up) you'll see prices spiral upwards once a critical mass of investors realise economic growth is a thing of the past.

Cheers

Steve