Factors involved in Fluctuation in Crude Oil Prices

Crude oil or Black gold Is the blood line of almost all countries, it not only helps in transportation but is heavily used for running manufacturing industries, as different type of energy producing fuel, bitumen (important material of road and infrastructure construction) and more then 4000 petro chemical products like plastic, rubbers and other chemicals are all produced using crude oils. So the price change of crude oil not only affects the oil producing countries but also other oil / byproducts consuming countries and GDP growth of any specific country depends upon crude oil directly or indirectly. Following are some major factors which affects the prices of crude oil. Role of Opec: Tweleve member Organization of the Petroleum Exporting Countries (OPEC) was found in 60’s to protect the interest of oil producing countries, although roughly 40% of daily oil production is done by OPEC members but they have formed a cartel to drive the world’s oil prices and protect interest of OPEC members. Another factor of OPEC being a cartel is presence of “swing producers” in OPEC which means in case of shortage of supplies “swing producers” can increase their production. Demand and supply: Crude oil also follows basic demand and supply rule of economics. USA consumes almost 22 % of global oil production which makes it the largest consumer of crude oil of the world, so any news in USA’s GDP factors (no matter good or bad) effects the over all crude oil price it reflects increase in demands in US. In the same way demand in huge emerging markets like Chine and India is also affected by change in GDP factor, whether it is unemployment, inflation or Government spending. In the same way the demand of fuel is also dependent upon the inventories kept by countries, so that does not mean that a recovering economy will straight away increase the demand but first it will consume the inventories maintained. Geo Political concerns: Possibility of crisis In oil producing or consuming countries can also suddenly increase oil prices, for example US Iraq invasion caused a sudden hike in oil prices as oil producing countries failed to satisfy the consumers on their uninterrupted supplies. Natural and Manmade disasters: Natural and man made disasters can also become a cause in oil price change, Oil markets closely observes US hurricane season to see what kind of impact it will have on oil supply. Katrina in 2005 caused a major oil price hike as it affected offshore production in gulf of Mexico and oil refineries in Texas. USD $ Value: As all commodities are traded in USD so a rapid appreciation or depreciation of USD value can also have an impact on oil prices.

Presented to: Sir Bilal Ellahi By: Suhaib Anwar - 1506

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