ABSTRACT
Petroleum is the world's largest market in value terms-accounting for up to one-third of international trade in recent years-and receives commensurate attention in the economics, business, and policy literature. Refining is processing the crude oil by heat and chemical means into products that can be readily used. Distribution consists of marketing these products together with service to consumers through gasoline stations, fuel oil deliveries, etc. Crude oil trading did not develop until the embargo. Expansion of spot trade has paralled the decline of term contracts. The distinction between flexible contracts and spot trade must be based on transactions costs, since the security value of such contracts is close to nil for both buyer and seller. The causes of the market responses to the supply shocks of the 1970s are disputed. Spot prices substantially exceeded contract prices during both disruptions, and were slightly below them over much of the intervening and succeeding periods.
