Environmental Engineering Reference
In-Depth Information
The small Oklahoman town of Cushing is the self-proclaimed pipeline
crossroads of the world.
chemicals, of which trading was an undefined part, but almost certainly
the largest.
This turnover figure is swollen by inclusion of cargos of oil sold over
and over again. Indeed, it is distorted to the point of meaninglessness, so
that professional oil-industry analysts pay little heed to the oil majors'
sales figures. Nonetheless, it is striking to compare this with Microsoft
a huge company but in this context a “normal” one with in 2008, a sales
turnover of only $60bn.
Yet even more extraordinary to the layman is that less than one percent
of these trades - averaging more than half a million a day in 2008 - actu-
ally results in the physical delivery of oil. The reason is that futures con-
tracts, such as Nymex's WTI contract, are good for gauging price, but bad
for any practical allocation of oil.
All features of a futures contract are standardized, with notional deliv-
ery for WTI set at Cushing, Oklahoma - except for price. Because every-
thing but price is standardized, these contracts are an ideal medium for
getting a good view of price through trading. But in terms of allocating oil,
the delivery feature of these contracts is totally impractical: very few peo-
ple want to deliver, or take delivery of, oil in a small town in Oklahoma.
But world oil-trading not only needs to provide flexibility of location.
It also has to cater for dozens and dozens of different grades of oil, which
is far from a homogenous product. So what has developed is a vast web
 
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