The Roller Coaster of Oil Prices
Oil prices are known to fluctuate frequently, much like a thrilling roller coaster. This unpredictability can be both exciting and challenging for businesses, investors, and consumers alike.
But what are the main factors driving these changes?
The impact of COVID-19 on oil prices
The COVID-19 pandemic dramatically impacted oil prices. Shutdowns caused demand to plunge and prices to drop, but as economies reopened, demand increased and prices rose again. This relationship between supply and demand is a fundamental driver of oil price changes.
But, is this the only factor?
OPEC’s control over supply
When OPEC (The Organization of the Petroleum Exporting Countries ) decides to make less oil, there might not be enough for everyone, so the price goes up. As of 2024, OPEC consists of 12 countries (five in the Middle East, six in Africa, and one in South America), and controls around 80% of the world’s oil reserves.
On the other hand, if they make more oil, there can be too much, and the price goes down. This doesn't just affect oil, but also the economies of countries that depend on importing it. When there are tensions between countries or political conflicts, oil prices can change drastically.
Natural disasters and price shocks
Natural disasters and civil unrest can also disrupt oil production and cause the prices to rise. For example, Hurricane Katrina in 2005 stopped 20% of the US oil supply, while flooding of the Mississippi River in 2011 also had a notable impact on oil production. Similarly, troubles in the Middle East pushed oil prices to historic spike in 2008.
Production costs
The price of oil can go up and down for many different reasons. If big countries like China and the U.S., or European Union countries aren't using as much oil, the prices can drop.
Also, getting oil from places like the Middle East is cheaper than from places like Canada. If the cheap sources run out, the more expensive sources would be used, and that would make the price of oil go up. More expensive production methods raise prices, while storage levels in key locations can affect supply and pricing.To sum it up
As seen above, there are many factors that influence changes oil prices, and while some of them can be predicted with a degree of certainty, other are impossible to foresee. It is also important to note that most fluctuations of the oil prices are a result of the combined effects of several different factors, which makes them even more challenging to accurately anticipate.
