Oil dependency is still alive and kicking. While prices have fallen over the last couple of years, there is still significant demand for oil. Many companies still need oil to produce some of their products and gas stations are usually pretty busy. Alternative sources of energy and fuel may be gaining some ground, but their current price tag makes them unaffordable for the average Joe and Jane. Therefore, many people are still in demand of black gold and they pay close attention to how the price of it behaves in the market. Every country has their own way to determine the price of oil but whatever formula they use has to take into consideration some factors which determine if the price goes up one month or down the other. Here are some factors, according to Suzzanne Uhland, that have a direct impact on the price of oil.
The obvious one first: Economics 101
Economics 101 teaches us the price of a product can be determined by two things: the first is supply and demand and the second is competition. Just like in any business, how much you can offer the public has a say in how much you can charge them for your product. In the case of the oil industry, things like shortages in gasoline or over stock cause the price of oil to either be wanted or not. OPEC once used to have a stronghold on determining the price of oil, but since shale oil production started to be an important business in the United States, the price of oil has seen a steady decline with no hopes of growing in the immediate future. This a direct result of OPEC finding a competitor who was able to fill in the demand gap left by recent OPEC resolutions looking to boost the price of oil by limiting production output.
The business one: future oil negotiations
Given oil is of the utmost importance to how the world runs, especially good old Uncle Sam’s nation, oil-dependent countries need to make sure they can fulfill their consumers’ requirements and thirst for oil. In order to do this, countries have to make sure there is enough in their reserves to either tap into them when needed or to sell some of their reserves to countries in need. They can only guarantee future supply buy negotiating ahead of time. This type of negotiation locks up current supply which in turn affects the price of oil.
The political one: the government impact
Have a good look at what’s happening in Venezuela lately. The political time bomb the country has become has had a direct impact on the price of oil and how it can be negotiated in the future. As a matter of fact, Venezuela recently sold a significant amount of oil assets to Vladimir Putin’s government in order to guarantee a loan from the Russians which would help Nicolas Maduro fund his dictatorship. Russia now has a majority stake in the Venezuelan oil industry which by the way, is one of the USA’s biggest (if not the main one) suppliers of oil and it is now in the hands of the Russians. They will now have the power to control how much oil the US receives and the price of oil while they’re at it.
The environmental one: beware of Mother Nature
The recent weeks have not been nice, environmentally speaking, to the United States. It seems Mother Nature has it out for America with a wave hurricanes and tropical storms hitting one after the other and with a force that has not been seen in a long time. Irma was just the latest to take a toll on the country and the nation’s oil production and it seems that there are even more damaging storms on the horizon. When a natural disaster strike is imminent, local authorities will tell people to take precautions. From evacuations to boarding up houses or getting away, the measures suggested by those in charge mean that people have to scatter. That leads to long lines at the gas pump and a shortage within a matter of hours. In order to comply with demand needs, gas companies have to stock pumps with higher frequencies than they prefer or if the natural disaster is devastating or looks to be devastating, they will cut supply all together, affecting the price of gas and of oil at the same time.
Oil prices are unstable because of the world’s instability. It seems that at any moment oil prices can either skyrocket or drop rapidly. There are those in power who can determine the price on a whim. And then there’s Mother Nature’s wrath, which some often argue it’s justice for years abuse to the earth. Whatever the case, oil prices will continue to matter as long as oil dependency is where it’s at, and there is no near timeline for it to cease.
* Featured Image courtesy of energepic.com at Pexels.com