Why does the price of oil rise and fall?


Quick Answer

The rise and fall of oil prices are partly determined by supply and demand, with prices increasing when production of crude oil falls and falling when production levels increase, according to Business Insider. When demand increases, such as in summer months, the price of oil usually increases.

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Why does the price of oil rise and fall?
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Full Answer

Disruptions in supply, such as those caused by military conflicts in areas of high oil production, can cause increases in the price of a barrel of crude oil, according to the Federal Reserve Bank of San Francisco. Even the expectation of conflict causing a disruption in production can cause the price to rise. As newly emergent economies, such as in India and China, develop the number of consumers in need of crude oil and petroleum products increases overall global demand, leading to price increases. Speculation in the commodity market also can influence the price of oil.

Other possible causes of changes to the price of oil include the seasons and the weather, with increased air conditioning use increasing the demand and causing price increases in summer months, according to the Economist. Additionally, weak economic activity, such as that caused by a recession, can reduce demand for oil and cause prices to fall. New technology that increases production can also cause prices to fall, according to Bloomberg News.

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