Effect of Commodity Prices on the Engineer, the Industry, and the World

Abstract

Technical Leaders How would you describe the commodities industry and its role in the oil and gas sector? The oil and gas commodities industry, i.e., the trading of oil and gas, is highly critical. Oil and gas being traded as a commodity signifies that it is a global industry. The trading of commodities— not just oil and gas, but any commodity— is a global endeavor. As such, the price is set by a global market. To me, that is the most critical factor about oil and gas. Interest rates and oil prices are probably the two variables that have the greatest impact on the global economy. Interest rates more so, but it also points to the importance of oil as a commodity. Oil and gas as a global market really took off in the 1970s and 1980s with the rise of the Organization of the Petroleum Exporting Countries and the development of technology that physically allowed the barrel to move. The advent of the Internet and electronic technology that facilitates the stock and trading exchanges of the world also fueled the globalization of oil and gas trading. What is the most common misconception about commodity prices and trends, specifically for oil and gas (either publicly or within the industry)? There is an assumption that traders set the price. Prices, especially long term, are set by the market’s perception of supply and demand—that is not just traders, but also the end users and the producers of the commodity. There are really three large groups that trade: producers, users, and the “middle men,” or what some people may call traders or speculators. While they do influence prices and add volatility, they do not really set the prices.