Oil consumption has increased drastically over the past three decades. With almost everything working with it, there is a chance that the reserves of oil might end in the next 47 years.
Just like you would like to use certain supplements such as RAD-140 to boost your stamina and muscle mass and burn body fat faster, you would need oil to ensure your transportation and other essential global tasks work fine.
But what are the specific factors that are highly influencing the oil prices?
This article will shed light on factors that play a major role in increasing oil prices.
1. Supply and Demand
The concept of supply and demand is pretty straightforward, and there is no rocket science that can explain it. With the rise in the demand for oil (or a decrease in the oil supply), the prices eventually increase. And similarly, you might be thinking that as the demand decreases or supply increases, the prices should drop, right?
Well, it is not that simple!
Actually, the oil prices are set in the futures market – an agreement that gives one a right to purchase oil at a predefined rate and date in the future. Under this agreement, both buyers and sellers are bound to obey this and place the transaction on the decided date.
2. Oil Price Cycle
In addition, from a historical perspective, there is an approximately 29-year cycle that governs commodity behavior and affects prices in general. Oil prices have been increasing since the beginning, that is, since the early 1900s.
Moreover, this commodity showed major spikes in 1920, 1958, and 1980. Subsequently, it must be noted that supply and demand, as well as other related factors, often change the patterns of cycles, as these cycles are just guidelines, not defined rules, in determining the changing price patterns.
3. Impact of Geopolitical Forces
Another factor that hugely impacts the oil prices is the problem with the cartels. This is an agreement that binds the producers of oil to control the supply and regulate or maintain its prices. The biggest influencer of oil prices is OPEC – made up of 12 countries, including:
- Kuwait
- United Arab Emirates
- Saudi Arabia
- Nigeria
- Libya
- Iraq
- Iran
- Guinea
- Gabon
- Venezuela
- Congo
- Algeria
Highest Oil Prices in the History So Far
The highest prices of crude oil were reached with a high inflation rate in June 2008. The prices were increased to $ 201.04 per barrel.
Lowest Oil Prices in the History So Far
Oil crashed after hitting its highest point in June 2008, just after 9 months in January 2009. It reached the lowest price of all time by $62.02 per barrel. This gave rise to the financial crisis and recession.
Relationship Between Inflation and Oil Prices
An increase in inflation rates results in increased prices of consumer goods and services while degrading the currencies. This results in increased costs of living for consumers, which thereby immensely impacts economic growth and yearly spending negatively.
The relationship between the inflation rate and oil prices is not new; it started decades ago. In fact, according to experts, they are correlated but have deteriorated since the spike in oil prices experienced in the 1970s.
Bottom Line
Different from other products, the prices of oil are not entirely determined by supply and demand and market sentiments. However, it is also impacted by other aspects, such as the future market and political forces. With that being said, it would be interesting to see how oil prices will go further in the future.