Understanding Commodity Oil Prices
Michalis 'BIG Mike' Kotzakolios


Defined Tag: Commodity Oil Prices.

The difference between commodity oil prices and equity oil prices is not always clear to those who have little experience trading in different markets. To simply things, commodity oil prices refer to the price of barrels of oil. In contrast, equity prices or share prices refer to the price of oil in an actual oil company, which is distinct from the price of the oil it sells. Another significant distinction is that oil commodities shares are usually sold in massive quantities.

One of the most unusual aspects of oil commodity prices, and commodities in general, is that they are bought and sold solely on the basis of price. The quality of the grain harvest, the purity of the gold, and the heating value of the oil are generally not considered in commodity prices. Instead, the trader or investor assumes that the commodities offered for sale are of a quality generally accepted in that particular industry. So instead of worrying about the quality of oil, traders can simply focus on whether or not the price of oil is likely to change, and, if so, in which direction.

This concentration on oil prices rather than on quality does not mean that all oil commodities are priced the same. Oil commodities are priced in part on the effort and work required to produce that oil. Different grades of oil also affect prices on the oil commodity market. For example, sweet light crude oil has a different commodity price than high sulfur crude oil and low sulfur crude oil. The location of oil production affects commodity prices too.

Oil commodities are priced either by the barrel (42 U.S. gallons) or by the metric ton (1,000 kg or 2,205 lb). Examples of oil commodities include light sweet crude oil, unleaded gasoline, diesel, light and heavy petrol, and Brent crude oil. The different crude oil commodities are usually differentiated by their sulfur content, with low sulfur being preferable. Low sulfur crude oil commodities produce less pollution.

In general, commodity is a financial term that is rarely used outside of the offices of stock brokers. When it is used, it refers to some raw material; and cannot be used to refer to some type of service. Additionally, every tradable commodity is assumed to be of uniform quality. Thus, the only thing the trader needs to take into consideration when selling or buying commodity oil shares is whether or not the price is likely to fall or rise in the near future.