Oil is one of the commodities used in the commodity market which recognized for large fluctuations in prices as compared to stocks and bonds. Even the analysts and researchers can’t forecast confidently and most forecasts are based on some assumption. It is because of various factors which affect the fluctuation in oil prices. Today’s article is here to understand why oil prices fluctuate more than anything and factors which directly impact the global oil prices.
Let’s discuss all these factors one-by-one.
Supply and Demand
Supply and demand play a major role in the fluctuation of oil prices. Not in commodity but also in stocks and bonds. It is the simple law of supply and demand, where prices fall when supply exceeds demand and prices rises when demand exceeds supply. The Organization of Petroleum Exporting Countries (OPEC) is a consortium made up of 14 countries the United Arab Emirates, Venezuela, Iran, Iraq, Algeria, Ecuador, Equatorial, Kuwait, Libya, Angola, Guinea, Gabon, Nigeria, Qatar etc.
OPEC committed to keeping the price of oil above $100 a barrel despite the prices began to fell helplessly down in mid-2014. Oil prices have been affected since then it valued $67 per barrel as of April 2018. Since OPEC handles the majority of oil supply on a global level so any action taken by OPEC will directly affect oil prices and its supply.
Natural disaster or any change in weather put a direct impact on the oil prices. By natural disaster, we mean hurricane, flooding, and other extreme change in weather affect oil prices to rise and fall subsequently. Oil spills into the ocean take away most of the supplies which led to more production. And more production means more cost.
Renewable Energy Sources
With the decrease in non-renewable resources like oil, petroleum, and coal many big automobile companies are switching to renewable energy resources like wind and solar. Not that we can totally depend upon the electric cars but in foreseeable future, we can expect the oil prices to go down when the electric cars will completely take over. Even in last 5-6 years, oil prices have been affected. Also, the prices of oil surge when the summer season began. It is because people drive more in summer.
The oil-producing country and the volatility in oil prices go hand in hand. Even the political affairs like elections, major policy changes, war times, or tension between countries are some common factors that drive the prices of oil.
This economic and political crisis can really affect the oil prices and create problems and issues within the country. This is why “oil” is considered as a very volatile commodity in the commodity market. There are many commodities but none like oil.
Sometimes, any false information is enough to skyrocket the prices of oil. For example, if there are rumors of a war between two countries, it still could fluctuate the prices of oil.
Apart from this, other reasons include interest rates, storage facilities, production costs, which can also affect the oil prices. Bad thing is, there are multiple factors which can put a huge impact on oil prices which create a challenge for investors to be more cautious towards their investment.
Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.