The factors that affect crude oil prices

  • 1 The Supply by Oil producing countries

    When the supply of oil exceeds demand the Oil prices go down and the opposite is true. Oil supply is usually controlled by the OPEC the Organization of the Petroleum Exporting Countries.

  • 2 The consumption by Major economies

    As economies grow countries need more oil to operate their Factories. A slow down in Major economies can reduce the demand for Oil thus leading to lower prices and the opposite is also true.

  • 3 Production of Oil in the united states

    Although not an OPEC country the united states Oil production can affect the market's prices.

  • 4 Technology advancement

    Technology advancement can lead to faster ways in producing Oil and as a result the supply might increase leading to lower prices.

  • 5 Geopolitical tensions near an Oil producing country

    If for example a war happened near an Oil producing country then fear of supply shortages might send the Oil prices very high. The violence in Libya in 2014 led to fears of supply shortages and as a result oil prices went up.

  • 6 Speculation

    Because Oil futures are traded normally on the stock exchange they are subject to short term speculation. If people expected Oil prices to rise they might send it higher by buying more Oil futures (See why stock prices don't reflect the business value).

  • 7 Natural disasters

    Natural disasters can affect Oil production if they happened in an Oil producing country. For example a hurricane in the united states can send Oil prices up if it lowered the united states production of Oil.

  • 8 Dollar price

    There is a strong negative correlation between Oil prices and the Dollar Price. Because Oil is quoted in US dollar a rise in the latter makes Oil more expensive to buy.

  • 9 China's Economy

    Because China is one of the largest consumers of Oil any slow down in it's economy can affect the Oil prices negatively. The opposite is also true, when the economy grows fast more oil is needed and so prices can go up.

  • 10 Hedgers

    The act of buying Oil futures to guard against Potential rising prices is called hedging. Oil intensive industries such as airlines might affect Oil prices through hedging.

  • 11 Global oil inventories

    Countries can store Oil when they supply exceeds the demand. The rise in inventories can reduce the price of Oil since countries can use their Inventories without buying more oil