Oil price fluctuation is a reflection of the global demand and supply of oil. The price of oil is influenced by a wide range of factors, from political instability in regions that produce and consume the most crude to advances in technology that make it easier or cheaper to extract oil from the ground. Oil prices are also correlated with other market variables, including interest rates and stock markets.
One of the most common reasons for oil price fluctuations is OPEC’s decision to increase or decrease production in an effort to balance the supply and demand for the commodity. This largely determines how much you’ll pay at the pump.
Natural disasters can also drastically impact oil prices, especially if they interrupt the transportation of supplies or cause damage to refining equipment. The 2005 hurricane that hit the Gulf Coast, for example, caused the price of a barrel of crude to rise by $13.
The cost of oil impacts both consumers and producers. When the cost of oil goes up, companies in industries like shipping and auto manufacturing can pass those higher costs on to their customers, which reduces consumer purchasing power. In addition, volatile oil prices can trigger economic slowdowns in nations that rely on the industry for revenue.
Fortunately, there are steps that can be taken to improve transparency and market efficiency to reduce needless volatility and price shocks. For example, improving access to data from OPEC and fast-growing Asian countries would allow analysts to better predict crude oil trends and inform future policy decisions.
About the Author
