Unlike other commodities, the price of oil company stock fluctuates based on much more than supply and demand, being influenced by supply-side economics that include exploration, development and production, according to Forbes Magazine. Understanding these fundamentals provides a solid estimation.
Oil prices fluctuate greatly based on innumerous intangible factors, such as economic mood, but the supply-side factors assist the most in making accurate predictions, according to Forbes.
Oil exploration is affected by the final stock price; when oil prices increase, exploration increases, and vice versa. By watching the international levels of oil exploration, it is possible to predict stock trends, explains Forbes. When large oil companies stop creating new wells, it is a sign that stock fluctuations are decreasing.
Development is the second indicator of oil price. This process increases the number of wells in a location that has already been explored. Development continues even when exploration is no longer viable, potentially meaning that the oil market remains stable but is not growing, according to Forbes.
Production is the final indicator, and this process is viable even in a bad market, due to its low cost. Because production continues even in the worst markets, this is the poorest of the three indicators, states Forbes.