How do they determine the price of oil?

Back in 1909 an American journalist called Warren Platt borrowed $2,500 from an insurance policy and seed investors to publish a monthly bulletin on oil, National Petroleum News.

Some 103 years later, Platts has become central to the global oil industry, and the values it publishes daily for a barrel of oil underlie an industry worth, on some estimates, $180bn.

His goal, to quote Platts’ website, was “to level the information playing field between independent oilmen and Big Oil by promoting transparency within the oil industry [and] by publishing reliable market-based price information to shed light on a once opaque marketplace, [and to] inspire greater market efficiency and competition.

By 1923, the industry was demanding more from the industrious Platt, and he launched Platts Oilgram, a two-page newsletter mailed to subscribers the same day it was produced. It was devoted wholly to price and market information.

Since 1924 Platts has been central to telling not just America, but the world the value of a barrel of oil.

Up until about 40 years ago, Platts told the world the prices that oil companies reported they were willing to sell oil at – ‘posting’ process. But such a pricing system was reassessed for its validity, because companies could give the same numbers each day – reasoning that exploring for/refining oil was their primary job, not pricing it – and because in general it became clear those producing and selling a product should not have sole responsibility for pricing it.

Platts is now active in assessing and publishing the oil price, not just republishing a price that has been given to it.

It is the central point for the oil price that most of the trading world, and certainly financial markets, use.

It assesses a reference price in every market it covers – including about 300 with contract exposure – once each day.

 

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