Lecture 23 Basic Energy Economics

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Futures trading is very common. The speculative commodities trading community flocked to the energy market after 2000. Crude oil futures and gasoline futures are traded at New York Mercantile Exchange (NYMEX) and Tokyo Commodity Exchange (TOCOM). Ethanol futures are traded at Chicago Board of Trade (CBOT). Speculation did some interesting things to the price of oil around the time of the recession in 2008. During that period speculation led to a massive increase in the value of oil, pushing the price of a barrel up to around $140. This stood in stark contrast to the internal value of oil in most large oil companies which is more on the order of $30-40/barrel. If an oil company can’t make money on an oilfield at $30-40/barrel they probably won’t develop the resource. So, you can imagine how thrilled they were and how great the profits became when fuel traders and speculation drove the price of oil to $140/barrel. Fuel smuggling is an aspect of fuel economics not often discussed. Large price differences between neighboring countries support gasoline smuggling at the cost of the country with the higher prices. Not all fuel economics is handled in the board room or the trading floor or the government – in some cases the economics are based on smuggling and stealing. In places were fuel is highly valued but not easily available, fuel can be acquired by more than just legal means. Even though we are globalized, national laws are relative to the country and this absolutely effects supply and demand economics. Written slide notes and support materials for each lecture can be found at the Bioenergy Education Initiative site () at Oregon State University An associated online E-campus course, BRR 350 Introduction to Regional Bioenergy () is also offered at OSU The Bioenergy Education Initiative is part of Advanced Hardwood Biofuels Northwest, supported by AFRI Competitive Grant 2011-68005-30407 from USDA National Institute of Food and Agriculture

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