Tag: Crude oil

What really determines oil prices?

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Oil holds its constant title as the most valuable commodity in many modern societies (making it a major element in most local and offshore portfolio management accounts), not only because it is one of the highly-traded non-financial products globally, but also because products derived from petroleum like oil covers a huge percentage of the world’s energy demand.

In the U.S. alone, crude oil provides 39% of the country’s energy source, with transportation topping the list for the industries that rely mainly on oil products on their day to day operations.

Since it’s the most sought-after commodity in the market today, the price of oil constantly changes. There are several factors that determine the price of oil and dramatic changes in these figures greatly affect the economy on a global scale.

However, unlike other products, what determines oil prices defies the basic rules of supply and demand. This is because the primary determinant of this commodity’s price will depend on traders who bid, on a daily basis, on oil futures contracts through the commodities market.

Traders make their decisions every day and their behavior that decides how they bid depends on controlled factors such as access to crude oil’s future supply, demand from the top oil consumers that include the United States, and most importantly, the present supply of this commodity in terms of output.

While traders and their sentiment towards oil as a potentially valuable commodity in the future can dramatically affect its price, other factors that are geopolitical in nature can also predict how oil prices will fare in the market.

Deals among economically dominant countries in the world greatly control the price of oil through pivotal decisions that could, in one way or another, influence the sentiments of traders and financial betters who are always on alert for every possible fallout.