Why Oil Prices Rise & Fall Around The World
To anyone that’s filling their petrol tank or heating their home without paying attention to the news, oil prices can seem to rise and fall with no real logic. If you ever wonder how these costs seem to yo-yo so unpredictably, here’s a guide to some of the most frequent factors involved.
Mother Nature Plays Her Part
Firstly, it’s important to understand that oil prices rise and fall based on perhaps a dozen different circumstances, all of which can affect the cost of imports, exports, and the eventual price you pay as a consumer. If you notice that prices are up in one country but down in another, it could be that one of those factors is not playing a role in one area, while in another location it is. Weather can play a big role; it may be costly to ship oil through a major storm in the Atlantic, for example. If other marine routes have calmer waters, those that receive oil via these routes may find their prices remain low.
Weather is not the only factor that shifts oil prices; geopolitical situations also play a strong role in determining the price of oil. The relationship that a consuming country’s leaders have with an oil producing country’s leaders can have a big effect on price fluctuations, and of course these relationships can change quickly – sometimes literally overnight.
Inventories are another important issue. For example, if a country opens their own oil pipeline, prices will drop internally – but even the oil imports coming into that country will be priced lower in order to compete with domestic oil. However, if domestic oil is in short supply, or supplies are uncertain, then imports will be likely to be priced higher.
Complex Systems Affecting Your Pocket
These are just a few of the factors that affect global oil prices; there are actually many more that play a role in determining just how much you will pay at the fuel station, or for the oil you use to heat your home. Some of these include exchange rates, production decisions, spare capacity, and speculation and hedging by traders. Everything from weather systems to a new leadership in a particular country can affect what you as a consumer end up paying. The reasons for oil price fluctuations may seem complex, even chaotic, but they do highlight the fact that that it pays to stay informed!