Oil Price Fluctuation
Oil price fluctuation is the ebb and flow of the price of crude oil. Typically, when demand is higher than supply, prices will rise, and vice versa. However, there are many factors that can impact the price of oil including weather, geopolitics, and internal economics.
The Organization of Petroleum Exporting Countries (OPEC) is the main influence on oil prices. This consortium of thirteen countries (Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, Venezuela) controls over 50% of the world’s oil reserves. OPEC sets production levels to meet demand and thus has a large say in the oil market.
Other influential factors include weather and political events that can affect global oil production. Unrest in the Middle East is a frequent driver of prices because that region supplies the majority of the world’s oil. Similarly, tensions between Russia and the West can cause prices to jump.
In addition, oil prices are impacted by the cost of extraction and storage. For instance, if oil has to be sourced from remote regions such as Alaska or Canada, transport costs will increase.
Lastly, price volatility disturbs governments of oil exporting countries because they rely heavily on revenues from sales. Low prices force them to cut spending, but high prices can lead them to demand expenditures that are not sustainable in the long run. Fortunately, policymakers can take steps to blunt intolerable volatility and help consumers cope with what remains.
