What affects oil prices? This can be a possible question in case you are interested in investing in the sector. There are many factors that affect the price of oil. They range from oil production to the way it is handled in the market. Oil is a mineral that is available naturally. In some areas there is plenty of oil while in other places it is very rare. There are many countries in the world that have a lot of oil resources which has made their economies grow. The mineral has many uses such as in powering industries and in the automotive sector. There are also other petroleum products that can be used for different purposes hence the commodity has many uses. Here are factors affect oil prices:
- Global changes in supply and demand
The oil production in the world is controlled by OPEC. The organization tries to maintain stable price for a barrel of oil but due to different challenges the price of oil barrel has been fluctuating. Because oil is produced in specific regions of the world, it depends on different means of transportation to reach different parts of the world. The constraints in transporting the oil to different parts of the world lead to differences in demand hence making the price of oil to fluctuate.
- War and political instabilities
Due to political instabilities in countries located in the Middle East, there has been an increase in the price of oil. This is due to the fact that when the countries that produce oil go into war with each other, they stop the oil production activity. A good example where political instability lead to an increase in the price of oil is when the countries that produce oil in the Middle East were in war with the USA. The most hit countries by the increase in the price of oil due to the war was those that used to import their oil directly from Middle East countries. War leads to lowering oil production hence leading to an increase in the world prices. The rise in the price of oil due to political instabilities in the producing countries affect many economies of the world especially those that rely on power from the oil to run their factories. This is mostly manifested where the cost of production goes up.
- Oil available in oil reserves
The price of oil in different countries can be affected by the oil reserves of the countries. For instance, different countries that do not produce oil will import it from oil mining countries and store it in their oil reserves. In case of a decrease in the supply of oil in a given country, the government of the country can decide to tab oil from its reserves. This will lead to the price of oil falling because traders will fear more decrease in the price of oil hence releasing more to the market. Some of the oil reserves that the government can tab to regulate oil prices include oil available in the oil refineries.