Oil price fluctuation has a strong impact on the global economy. When prices rise, consumers and companies pay more at the pump and through utility bills. When prices fall, they can spur economic growth by reducing business costs. But predicting what will happen to prices is not easy, and the implications of big changes can have long-term consequences.
The underlying factors that drive oil price fluctuations are complex, and many of them have changed over the years. In the past, supply disruptions triggered by political events (such as the Iranian revolution, Iran-Iraq war, and Arab oil embargo) and financial crises have been major factors that can shift oil prices rapidly. In addition, technological innovations and the financial condition of crude oil producers can also influence the level of oil production.
With the development of the crude oil commodity market and its derivatives market, the formation mechanism of oil prices has undergone profound changes. This paper decomposes the source structure of the WTI oil price fluctuation, and analyzes the dynamic evolution characteristics, asymmetries, and event impacts of the different sources of oil price fluctuations.
The results show that the overall trend of oil price fluctuation is increasing. The rising oil price fluctuation is mainly caused by the change of the oil market’s fundamental commodity attribute and financial attribute, and it has a direct relationship with the increasing financialization of the crude oil market. In the short term, regional political risks will increase oil price fluctuations by changing the global crude oil supply relationship. While in the long run, financial market risk will enlarge the fluctuation range of oil prices.
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