The price of oil is determined by oil extraction professionals, their governments and the gasoline-buying public. Oil prices are also influenced by how oil futures traders perceive the commodity's future outlook.
As with most commodities, the price of oil is largely determined by the interplay between supply and demand.When oil supplies increase and public demand remains static, the price of oil typically falls.
If available supplies cannot keep up with demand, the price of oil goes up. In some cases, oil companies with large cash reserves will strive to lower oil prices to put less-prepared oil firms out of business.
Oil prices are also affected by the policies of government authorities around the world. In many nations, oil extractors are partly or wholly controlled by the government. Political and military tensions between nations can cause oil prices to spike.
In October 1973, oil-producing states in North Africa and the Middle East initiated an oil embargo. The embargo was a protest against U.S. support for Israel in 1973's Yom Kippur War. By the following March, crude oil prices had skyrocketed from $3 to $12 per barrel. In 2012, tensions between Iran and the United States also led to a major increase in the price of oil.