Why Is Oil Priced The Way That It Is? | OilPrice.com

General misunderstandings of how the oil market works are running rampant.

I shared the following story on Facebook last month, and it resonated with people. Some suggested that it should be an article, so here it is.Imagine that you raise chickens. You have a large operation, so you don’t sell your individual chickens to your neighbors. You take them to a market where they are auctioned off each week.

There may be times when you make far more money than it cost you to raise your chickens. A windfall, if you will. People get angry with you for making more money at their expense. They may demand that you lower your price for your chickens, even though that price is being set at the auction. Whom did you gouge in this process? Sure, there are times when chicken prices were high and you were making a lot of money at the expense of your fellow citizens.

Second, there will still be times when chicken prices plummet. Neighbors who may have been happy to pay you a small profit margin for your chickens when market prices were high will be far less willing to pay you over market for your chickens if the price falls.

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