Oil price fluctuation can be a frustrating and confusing phenomenon. There are several reasons why oil prices ebb and flow so rapidly. Among the most significant causes is demand, as global economic growth drives demand and pushes prices higher, while slowdowns reduce demand and lower prices. Another major factor is the supply of oil. Refineries and pipelines are often impacted by weather or other issues that restrict the flow of oil, driving up prices.
Finally, the cost to produce oil is also a significant influence on oil prices. The Middle East accounts for a large share of the world’s oil supply, so political instability in the region can cause the price per barrel to rise. Also, the cost to extract oil from Alberta’s tar sands is expensive.
Lastly, the price of oil is influenced by market speculation. As investors react to forecasts and trends, speculation can drive up or down oil prices. This speculative element has been a significant factor in oil prices for over a century.
The impact of these factors on the real price of oil tends to be short lived. Once the problem subsides or the oil and petroleum products return to normal flows, prices are usually able to recover to their previous level.
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