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Oil is one of the important strategic energy to guarantee the development of modern industry and
economy, and is also an important resource, which is scrambled by each interest group in the world.
Oil price fluctuation is always regarded as the barometer of worldwide economy, whose each change
would be the hot issue to be concerned and discussed generally in political and economic
circle in every country. To the basic factors that decide the international oil price, some experts
believe it lies mainly in the supply and demand. But behind the international oil price fluctuation
existed not only the constantly self-adjust between supply and demand on the world crude
oil market, but also the strength competition between nations, for this reason caused the
diversity and complexity of the factors, which affected the international oil price fluctuation.
Based on this, we are going to present comprehensively main
factors which determine the international oil price fluctuation. So you know what to
expect when the seasons change or if tension builds between major oil-producing countries.
Here are the factors affect oil prices rise and fall. So sit back, relax and enjoy this video!
#1. THE ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES or (OPEC)
OPEC influences oil price fluctuations more than any other factor on this list.
OPEC is a consortium that, as of 2021 is made up of 13 countries: Algeria, Angola, Congo,
Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia,
the United Arab Emirates, and Venezuela. OPEC's mission is to provide stability within the oil
market by establishing uniform policies, regularly supplying petroleum to consumers
and ensuring producers receive a fair income. In short, OPEC helps bring order to the oil market.
OPEC was formed by five oil-producing countries in the 1960s. According to 2016 estimates,
81.5% of the world's crude oil reserves are located in OPEC countries. OPEC does
not decide how much oil costs but can influence prices by controlling oil production. They aim
to set production to meet global demand, but if they increase or decrease oil production levels,
they can affect the price of oil. Generally, when production goes down, prices go up.
According to 2018 statistics, OPEC controls almost 80% of the world's supply of oil reserves. The
consortium sets production levels to meet global demand and can influence the price of oil and gas
by increasing or decreasing production. OPEC makes decisions based on current supply and demand and
also considers future expectations. Before 2014, OPEC vowed to keep the price of oil above $100
a barrel for the foreseeable future, but midway through that year, the price of oil began to
tumble. It fell from a peak of above $100 a barrel to below $50 a barrel. OPEC was the major cause of
cheap oil in that instance, as it refused to cut oil production, leading to the tumble in prices.
#2. SUPPLY AND DEMAND IMPACT As with any commodity, stock, or bond, the laws
of supply and demand cause oil prices to change. When supply exceeds demand, prices fall; the
inverse is also true when demand outpaces supply. The law of supply and demand is a basic rule in
oil economics and a major factor when it comes to price. Demand refers to the amount of a product
consumers want and are willing to pay for. Supply refers to how much of a product is available.
The relationship between supply and demand affects all commodity prices, including oil.
The dramatic drop in oil prices in 2014 has been attributed to lower demand for oil in Europe and
China, coupled with a steady supply of oil from OPEC. The excess supply of oil caused oil prices
to fall sharply. While supply and demand impact oil prices, it is actually oil futures that set
the price of oil. A futures contract for oil is a binding agreement that gives a buyer the
right to buy a barrel of oil at a set price in the future. As spelled out in the contract,
the buyer and seller of the oil are required to complete the transaction on a specific date.
Let us give you a few examples of how supply and demand work:
 High supply and low demand equals low prices: When the supply of a product
increases, the price goes down. When the price goes down, the demand goes
up because consumers want to pay a lower price.  Low supply and high demand equals high prices:
When there is too much demand for a product, the supply will run low.
When there is not enough of a product to meet the demand, prices increase. When prices increase,
the demand eventually decreases because people do not want to pay high prices for the product.
Prices will fall once demand goes down.  Equilibrium as the goal:
When equilibrium is reached, the amount of available supplies
equals the demand. #3. NATURAL DISASTERS
Natural disasters are another factor that can cause oil prices to fluctuate.
For example, when Hurricane Katrina struck the southern U.S. in 2005,
affecting almost 20% of the U.S. oil supply, it caused the price per barrel of oil to rise by $13.
In May 2011, the flooding of the Mississippi River also led to oil price fluctuation.
The COVID-19 pandemic is another example of a natural disaster, but unlike nearly all other
natural disasters that raise the price of oil by creating a supply shock, the COVID-19
disaster created a demand shock. Many flights both international and domestic were canceled on orders
of governments to close borders. As a result, gasoline consumption in the U.S. fell off a cliff.
Consequently, gasoline refiners didn't want to take oil that they couldn't process for sale, and
oil reserves began to pile up at the WTI storage facility in Cushing, Oklahoma (where oil is stored
for delivery in the U.S). In response to the crisis, major oil producers sidelined production.
#4. POLITICAL INSTABILITY From a global perspective,
political instability in the Middle East causes oil prices to fluctuate, as the region accounts
for the lion’s share of the worldwide oil supply. For example, in 2013, the cost of
crude oil went up to over $115 a barrel because traders bid up the price of oil after the U.S.
announced they would use air strikes on Syria. Although Syria is not a major source of oil,
traders worried how an air strike would affect other oil-producing countries, including Iran.
And the last factor which determine the international oil price fluctuation is,
#5. CHANGES IN THE ENERGY INDUSTRY Changes in the energy industry affect prices as
well. As more people turn to sustainable options, such as wind or solar power, the demand for oil
diminishes. It's estimated that by the year 2022, renewable electricity will grow 40 percent around
the world. Another area that limits the need for oil and causes prices to drop is the increase in
the availability of hybrid and electric vehicles. In short, the energy industry is sure to evolve,
and experts are watching to see what role oil will play in the future. But for now, the oil
markets remain a powerful force in the world of economics, geopolitics and your commuting budget.
Thank you for watching and don’t forget to click other awesome videos.