Is it fair economics pricing already found& in production oil at prices based on higher cost of new oil finds?

Question

This is the fully-worded economics Q: Is it fair economics pricing already found& in production crude oils (appropriately adjusted for quality and logistic/transortation differentials at the prices based on the higher cost of finding and developing new oil finds in small oil fields?

Specifically, why can't crude be priced based on weighted average E&P costs rather than being priced on speculator inflammed spot prices on a futures exchange or the monoply prices set by the OILCO'S AND OPEC. This is a pricing issue bec the system of pricing is biased to the upside rather than to the downside that we see in the competitive electronics industry and many other household goods that we buy from competing retailers?

Answer 1

The term "fair" is not an economic term and the oil cartels are not interested in fairness but the profit motive.

You must also consider that oil which may be low cost at the moment will increase in cost of production as each well approaches and passes 'peak oil'. Having an inflated price now can offset price rises in the future and allow a high profit producer stay competitive when his costs increase and cut his profit margin.

Answer 2

Pricing is based more on the supply and demand than the extraction cost.

Answer 3

The price in the spot market and the futures market is determined by the balance of buyers and sellers. The sellers are, of course, free to set a floor below which they won't make any more offers, but it is still market determined. Buyers, of course, are free to stop bidding if they do not feel that they can realize a profit from the oil they buy.