The Petrol Price Is An Illusion!
BP Petrol station in Greece. Image Source: https://commons.wikimedia.org/wiki/User:NikosLikomitros
A long time ago I read a comment on YouTube about petrol prices that went something along the lines of this. The oil market is a myth and petrol prices are not set by the free market but rigged by the major oil companies.
The mechanism for the rigging being as follows.
The majority of the world’s oil production never sees the open market. The majority of the world’s oil production, something like 80% is never traded.
The major oil producers are vertically integrated meaning they have owned the oil for decades (when the drilling rights were bought) and they sell the oil directly to the end consumer.
There is no trading of oil. The cost of the oil in the ground does not change.
The oil “market” is an illusion. It is theater to disguise the fact that the price is set by a cartel.
Around 20% of the world’s oil production goes on the open market for suppliers and buyers to bid on and this 20% of production is what sets the price for the remaining 80% of the oil.
By controlling/manipulating the amount of oil available to this 20% of the market (eg by OPEC), the price of petrol and fuel in general can be manipulated up or down at will by the major oil producers. And the price changes at the pump are blamed on the supply and demand of the market.
Except the fuel sold by the major oil companies was never bought or sold. It came from the ground and the price was decided decades ago when the drilling concession was purchased.
This was the essence of the YouTube comment. The oil companies needed an excuse to explain why the price of oil changes even though they have owned the oil for years. They release a small percentage of their production into the open to create a price and rig the price of the oil they already own and to legitamise the fact that all the oil is the same price even though it is produced by different countries in different parts of the world.
When we hear the term open market it gives the impression that it is about supply and demand, that there is competition between companies to produce the best product and the lowest price to be serve the consumer. But the reality is, at least in the case of oil and petrol prices, that the opposite is true. All the products from all the major producers are put into one pot and one price is decided for the product (oil) in the pot. The facade is a free market, the building behind it is a monopoly (oligopoly), where the producers conspire to set the price they want, rather than let a free market find the true price of oil & petrol, if the oil producers had to compete against one another for customers.
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