Markets & Pricing 101

Finding the best price within the oil market is not easy. It is crucial to understand how oil markets work so you are best equipped to navigate them. We aim to provide you with a basic understanding of market analysis. With that knowledge and our support, you should feel assured in securing an excellent price.

There are two pricing models used in oil sales: board and basis, and flat pricing. Board and basis are used for commodity oils like soybean oil, canola oil, and cottonseed oil varieties (also known as vegetable oils). “Board” means the trading rates for raw materials at the Chicago Mercantile Exchange, formerly the Chicago Board of Trade. “Basis” means the expenses associated with processing, refining, and shipping the product.

Non-commodity oils such as corn oil, peanut oil, olive oil, safflower oil, sunflower oil, and organic oils are valuated with flat pricing. Because the oils are not publicly traded on an open exchange, the pricing is not tied to market fluctuations in the same way. Flat pricing considers the price of both the raw materials and basis costs such as refining, processing, and shipping. Flat pricing is that it is a direct exchange and exists outside of public exchange.

With every oil, many factors can influence prices. The largest are weather conditions, shipping conditions/economics, and geopolitical affairs.

Weather conditions also impact the pricing of plant-based oils. This is only growing as the effects of climate change becoming more prevalent. We are currently witnessing how weather can increase the cost of olive oil, with record-level prices due to severe drought in Spain. Changes in weather trends result in large fluctuations in global agricultural markets. Ultimately, Mother Nature has a hand in oil pricing as climate change poses challenges for crops, from droughts to floods.

With olive oil, another factor contributed to the increase in its price. Spain faced reduced olive oil production due to drought. Meanwhile, Turkey experienced successful harvests. As Spain is the primary global exporter of olive oil, this created a significant supply gap. In reaction, Turkey’s Ministry of Trade banned bulk olive oil exports to maintain stable domestic prices. This further decreased global olive oil supply, resulting in historically high olive oil prices.

Shipping companies are rerouting their cargo away from the Red Sea. This is due to escalating attacks by the Houthi rebel group in Yemen, in response to the ongoing conflict in Gaza. This has affected the Red Sea trade route, a vital global trade pathway. Many ships have had to take longer routes, leading to extended shipping times and increasing associated costs. They are passing on the costs of higher fuel usage, increased crew wages, and other operational expenses.

To best navigate oil markets, you need someone on your team who understands the underlying factors. Each type of oil has its unique conditions that determine its prices. Pricing models, geopolitics, weather patterns, and shipping conditions can all influence oil prices. That’s why we offer a market update newsletter that gives you a top-level analysis of key oil crops and markets.

Do you still have questions? Check out this infographic or contact us to learn more!