Price Fluctuation in Crude Oil: What are the determining factors?

Crude Oil is an essential market commodity that can form or fall an economy. That is the reason why crude oil-producing countries flourish in the international market. The USA and Russia are powerful economies in the world because of crude oil. It is an essential commodity in every country. That’s why crude oil price affects the Globe. However, the concentration of its sources in a few countries only, makes crude oil a volatile commodity. Now let us see in detail all the factors that affect the price of crude oil in the international market-

1. Supply Factors

The basic rule of demand and supply applies to crude oil also. It is produced in Russia, the USA, and the middle east. Hence, prices fluctuate in the international market whenever the supply of crude oil gets affected. The basic rule says- less supply increases the price, while excess supply reduces it.

2. Demand Factors

Like supply factors, demand factors are also equally important for determining the price of crude oil in the international market. Supplying countries get the demand for crude oil from every corner of the world. In this demand, the share of larger economies is higher. Any sudden increase in demand causes a price hike in crude oil. While the decrease in demand lowers the price.

3. OPEC

The Organization of Petroleum Exporting Countries (OPEC) is a crucial name in the oil production sector. The major 13 oil-producing countries form OPEC. These countries have 81% of the world’s total oil reserves. Hence, they have considerable control over the price of crude oil in the market. Their decisions affect the crude price in the global market.

4. Value of US Dollars

Crude oil prices are determined in dollars. Hence, changes in the value of the US dollar also affect the price of crude oil. Devaluation of the dollar gives more power to buyers for buying crude oil and vice versa.

5. Awareness of green energy 

Earth is now moving towards sustainable development. Hence, the use of green energies like solar affects the demand for crude oil in the market. However, this factor is applicable in countries that are considering green energy for use. An increase in the consumption of green energy affects the demand for crude oil and ultimately its price.

6. Other disturbances in the international market

Apart from these factors, wars, national and international unrest also affects the price of crude oil. The Russia-Ukraine war is the latest example of this factor. Since the commencement of the war, the international market has seen a price hike in crude oil.

To Wrap Up

Crude oil is undoubtedly the most crucial commodity of today’s time. It is used in almost everything and hence its prices affect almost everything in the world. Due to this significance of crude oil, its prices are so volatile. You can check the continuous fluctuation in the price of crude oil at 5paisa. The demand and supply of oil is the most determining factor for the crude oil price in the Globe. However, other factors like the value of the dollar, decisions of OPEC, instability in the international market, etc., also affect the price of crude oil.