fixed and floating methods of pricing crude oil.

Expert Solution

There are numerous methods of pricing crude oil. Fixed and floating methods are discussed below:

1. Fixed Method

Prices under this method can again be set in two ways. The first is where the parties involved agree to the price by themselves without any outside intervention. The second is where the government of the country sets the price for the crude oil for a certain fixed amount of period. This happens where the crude oil market has been nationalised by the government.

2. Floating Method.

Unlike the fixed method, this method doesn't deal with any fixed or predetermined price. Here the price is determined only on the delivery of the crude oil. The average ongoing price of the crude oil at the time of delivery will be set as the price. There are specialized companies set up just for calculating and determining this price. The reference price given by these companies is used to settle the sale obligation.

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