The price of crude oil is affected by the shifting of the supply and demand of oil globally, explains the U.S. Energy Information Administration. While demand does not fluctuate greatly on a global scale, current geopolitical events, especially turmoil in the Middle East region, strongly affects the supply, and therefore the price.Continue Reading
Fundamental economics states that the price of a good, in this case crude oil, rises with more demand or less supply, and falls with less demand or more supply, explains Investopedia. Therefore, because a very significant portion of the world's oil supply originates in the Middle East region, geopolitical events in the region, such as the Iranian Revolution or the Iran-Iraq War tends to raise prices by disrupting oil supply in the region as well as calling into question the availability of future oil, notes the EIA.
Events that can influence the price of oil are not exclusively caused by political turmoil in the Middle East. Weather events such as hurricanes can destroy pipelines and refineries, also hurting supply of oil and raising prices, states the EIA. Although most causes of higher oil prices result for supply disruption, an increase in demand for oil, such as during a particularly cold winter, can also raise prices.
Finally, decisions by the Organization of the Petroleum Exporting Countries, known as OPEC, to cut or raise production can significantly influence the price of oil worldwide, as evidenced in a chart published by the EIA, which shows crude oil prices reacting to a variety of geopolitical and economic events. This includes prices rising after 1999 and 2009, when OPEC made decisions to cut oil production.Learn more about Industries