Crude oil prices tend to reflect events that potentially disrupt the flow of oil from extraction to refineries to the end product, according to the U.S. Energy Information Administration. Events that disrupt the supply of crude oil include geopolitical instabilities and weather-related happenings. For example, the Arab oil embargo of 1973 to 1974 caused petroleum supplies to plummet in the United States, raising the price of crude oil from $15.66 to $45.78 per barrel in the span of one year.Continue Reading
Contrarily, the world financial collapse of 2007 and 2008 caused the WTI crude oil price to collapse from a high of $125.22 to $42.89 per barrel from the second quarter of 2008 to the first quarter of 2009, notes the EIA. Events that disrupt supply or increase uncertainty regarding future oil supplies tend to make the price of oil rise. Other worldwide events that have caused crude oil price changes include exports dropping due to OPEC production cuts, political upheavals in the Middle East, wars in the Middle East and low spare capacities of countries. When spare capacities and inventories in particular countries remain low while traders believe geopolitical events may hinder future supplies, prices may rise due to so-called risk premiums.
Weather phenomena, such as hurricanes in 2005, may shut down refineries and cause prices to spike quickly, says the EIA. Bitterly cold weather may increase prices as oil companies struggle to meet demand of homes that suddenly require large supplies of heating oil to maintain furnaces.Learn more about Investing