Factors that Influence the Price of Crude Oil
Commodities such as oil tend to be exposed to greater fluctuations in price than a stable investment like bonds and stocks. The various influencers that affect crude oil prices are explained below.
Effects of Demand, Supply and Futures Contract on Oil Prices
Like any other commodity, bonds or stocks in the market, prices of crude oil are also mainly affected by the market laws of demand and supply. It is not a layman’s job to invest in crude oil, it needs an expert’s advice to gain by investing in this commodity and hence, crude oil tips are crucial.Shyam advisory not only provides effective crude oil tips but also endeavors to explain what influences crude oil prices.
When demand exceeds supply, prices increase and prices decrease when supply overshadows demand. For example, when the prices of oil fell in 2014 it can be accredited to a lower demand in relativity to supply of oil by OPEC in China and Europe. The increased supply of oil prompted the prices of oil to fall alarmingly. The fluctuations in oil prices have been high ever since that year, which values at $67 for each barrel approximately as of April 2018.
Although demand and supply affect the oil prices, oil futures contracts also play a major role in determining a price for the commodity.
As a futures contract is a binding agreement, a futures for oil gives the buyer a right to purchase a barrel(s) at a predetermined price in the future. The seller and buyer of the barrel(s) of oil are expected to fulfill the transaction on set terms at a specific date as agreed to in the contract.
Thus, instead of relying on core instincts, get fruitful crude oil tips from Shyam Advisory and multiply your investments.
Let’s look further into how demand and supply affect the prices of oil in detail-
Before diving into the topic, both Supply and demand have a lot to do with how much oil is available and how its prices are determined.
Historically, supply has been determined by the countries that are members of OPEC. But times have changed and now, the United States plays a bigger role in the supply of crude oil, all thanks to the American shale fields for a boost in production. That means, when major oil- producing nations of the world put out a lot of oil in the market, the supply goes up.
For example, let’s analyze what happened in 2014. Saudi Arabia decided against cutting oil production and in favor of producing an increased level of the commodity. While getting an aggressively enormous supply of oil from the United States at the same time as well.
Oil prices started crashing as there was far more oil in the market than the nations could consume.The blame of this free fall in the prices of oil was put majorly on OPEC as it refused to cut down producing oil. But OPEC itself had put the blame on U.S. shale drillers for pumping oil in large levels and said they should cut production first.
Another example is of when 1973 when the Arab members of OPEC had put a ban against States as a method of revenge for the States supporting Israel during the Yom Kippur war. After the restriction, the supply of oil in the States became so scarce that the demand got highest it has ever been and lead to the price of crude oil to increase so much so that the gas stations started rationing gasoline.
On the other hand, demand is determined by how much necessity is there in the market for oil at a given time. That necessity often generates for factors such as transportation, electricity, and production of heat. Demand for oil in a nation/ region is directly related to the economic growth of the region.
Ever since the global financial crisis, economies all over the world have been quick to pick up growth and have gotten stronger which has resulted in countries using more energy derived by crude oil.
Besides these factors that affect the price of crude oil in the international market, the lingering question of how the market will react to renewable energy depends on if it is economically affordable.
Meaning it can only replace the depletable crude oil in the market if it could be priced in a less volatile and a more stable manner.
But as of right now, renewable energy still stands to be more expensive than non-renewable energy which does not favor the consumers to make the switch just yet.
Thus, understanding this demand and supply then forecasting the trend is not a child’s play, so register now at Shyam Advisory and get a great deal on crude oil tips’ package.