The prices of petroleum depend on several factors. Having a clear knowledge of the causes of the fluctuations of price of oil might be sometimes difficult for those with little insight on the commodity markets. But understanding the main factors that move and shake the oil prices is pertinent for those who want to fare well investing in this market.
Oil prices are mostly affected by global fluctuations in demand and supply. OPEC is the organization in charge of controlling the supply of oil in the world. Their responsibility is to ensure that there is a level playing field among its members (who are made up of oil producing countries) in the pricing and sell of oil in the international market. Though their objective for the past 10 years has been to keep the prices of oil under $30 per barrel, global economic fluctuations have made this task very difficult to attain.
It will be correct to point out that devastating weather, recession, and wars are the major external causes of oil price fluctuations in the world. The hurricane Katrina of 2005 is a perfect example of how weather can affect the general oil price level. It directly impacted on the production of oil in the Southern Gulf Coast of the US. This obstruction in the production and distribution of petroleum reduced supply why demand remained constant. This led to a rise in oil prices from $40 to nearly $75 per barrel, but the intervention of president Obama by releasing 30 million barrels from Federal reserve ensured that price does not escalate any further.
Effect of War on Petroleum Prices
The Middle East has been a center of political instability for years. This region supply 70% of the world’s oil fields and a production disruption will definitely affect the output of oil. When oil is in short supply and demand remains constant, it forces an increment of the price both in the immediate and international market.
Recession too can have an effect on petroleum prices
Several factors can combine to decrease the demand of oil during a recession. In this case, demand for oil falls due to consumers cutting back on expenses. And the first place they begin when reducing their expenses is fuel consumption. This normally have a negative impact on oil as supply becomes higher than demand, forcing a decrease in price. Recession generally affect transportation, which reduces the level of demand for oil.
In general, while it is the sole jurisdiction of OPEC to control global oil prices, there are several uncontrollable factors (as mentioned above) that can have a fluctuating effect in oil prices on the global scale.