What Affects Oil Prices


What Determines Oil Prices?


Oil plays an important role not only in industries, aviation and transportation, it also decides the economy of the country. That’s why government of the country and central banking institute of that country always keep one eye on the oil prices.

But one question is there, how the price of oil is determined?

Like price of most of the commodities, the price of oil also results from the interaction between the supply and the demand.

There are some external and internal factors related to the country which also influences the demand and supply of the oil.

What Determines Oil Prices
What Affects Oil Prices

Let we understand these terms in detail;

Supply

There are different types of the oil grades and production of these oil grades are carried out in different countries and in different economical environment of that country.

Organization of the Petroleum Exporting Countries (OPEC) is the organization of 12 countries which produces oil and which deals with more then 45% of oil production globally.

That’s why OPEC directly influence the oil price by controlling the oil production i.e. less oil production rises oil demand and hence increase oil prices.

The supply of oil is also affected by the situations under which the production of oil happens for example; environmental regulations imposed by government agencies and geographical condition which are difficult for production of the oil. These conditions increases the cost of production.


Demand

Economy of the world decides the oil requirement. The countries which are developing very fast, increases demand of oil. Also, population factor also responsible for oil demand.

Weather and environment of that particular country also decides the demand.

Demand also depends on the countries financial environment and political conditions. Let understand these factors;


Political factors

The countries where the political conditions are not good and always under civil war and other political conflicts have negative effect on oil supply and demand.

Same like with whether conditions like drought and severe flood also varies demand.


Finance market factor

Many organizations defend themselves against to price fluctuations with finance market activities i.e. by trading the oil in the finance market. These companies use to bet on oil prices and it makes them profit. This shows a price change for short duration but not permanent.

Conclusion

Now we understood some of the factors which decides the price of oil in the market. Most of the things happen in the market is just for earning profit. Oil is in demand and no one want to miss the opportunity to earn profit from it.

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