What Are Some Factors Influencing Oil Prices?


Quick Answer

Factors influencing oil prices include: foreign and domestic supply and demand, politics, economic stability and production. Oil prices fluctuate on a short-term and long-term basis; this fluctuation stems from constantly changing conditions and factors. The actions of some leading oil producing groups, like OPEC, also impact prices by setting important production parameters like quotas, which in turn affects production rate, say NASDAQ analysts.

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Full Answer

In addition to changing from variables, oil prices see change from more concrete and long-lasting forces. Two constants, market supply and demand and market psychology, act as main factors affecting oil prices, note researchers at Investopedia. A higher demand among consumers or slowing production rate, or combination of both, generally results in higher oil prices. A decreased demand and high production volume, on the other hand, often lowers oil prices. Low oil prices drive demand among consumers and provide cost-saving benefits, but often hurt oil companies financially. These companies receive a lower income from selling oil at low prices, and sometimes fail to earn profits in a given time period.

Politics and oil consumption within nations also impact oil prices. Nations with high oil consumption, for instance, require more oil, which balances the demand and supply ratio. Political turmoil sometimes affects movement of oil across borders, which impacts prices.

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