1.
Market Conditions.
The mission of the DESC is to provide DOD bulk petroleum as cheaply as possible and to provide customer
support. Obtaining an economical price is done by tracking the market conditions under which petroleum is sold.
2.
Market Factors Affecting Petroleum Purchase Price.
Some factors that cause the price of petroleum to change are:
The type and amount of product being bought.
The time of year (season).
Possible national or international crises.
National or international policies, (for example an embargo imposing restrictions on the sale of
petroleum).
The current world production level of petroleum.
Consumer demand.
These are not all the factors that affect the price of petroleum, but are enough to give you an idea of how complex
tracking market conditions can be.
3.
Market Timing.
DESC monitors the market and tries to "time" purchases of bulk petroleum products to when overall market
conditions are favorable. When the conditions are good, a contract to purchase a set amount of product at a set
price is offered. The price offered in the contract is based on the price of crude petroleum as listed on the stock
exchanges for that day. The goal is to set a reasonable price, not an artificially low price, as when a glut of crude
oil is on the market, or an unreasonably high price, possibly due to seasonal demands. The reasonable price goal
does two things:
a. It helps attract bids, or offers, for the DESC contract. The supplier is confident that a profit can be
made throughout the term of the contract and is willing to make an offer.
b. It helps ensure that the supplier will not renege on the contract. If the price of the purchase was set
when there was a glut of oil on the market and then the price of the crude oil returns to its normal range, then the
supplier may find it cheaper to renege on the contract and pay penalties to continue filling the contract at the set
price.
QM5200
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