Oil Price Fluctuation
When oil prices rise, it impacts everything from gasoline for cars and airlines to electricity and heating. These prices can increase costs for consumers and businesses, which can slow down economic growth.
Oil prices are driven by a number of factors, including supply and demand. The cartel OPEC controls production and sets export quotas to try to control price levels. However, shale oil has been a big disruptor to that plan. The other main reason for fluctuation is the low responsiveness or “inelasticity” of both crude oil and petroleum products to changes in price. Neither oil production nor equipment that uses petroleum products responds quickly to price signals, which makes it hard to balance supply and demand.
Another major factor is natural disasters or political instability, which can cause a spike in oil prices. This is particularly true when the disruptions affect the transportation of crude oil, which requires pipelines that are susceptible to damage from hurricanes or wars. It is also difficult to get replacement oil when supply is interrupted.
The impact of oil price shocks depends on the type of disruption and the effects on global economies. For example, a surge in oil prices can hurt the tourism industry and reduce consumer confidence. But a drop in oil prices can help the economy by reducing inflation and lowering energy costs for consumers.
