Fluctuations in oil prices are driven by events that disrupt supply and distribution, including geopolitical conflict and weather-related catastrophes, states the U.S. Energy Information Administration. Forecasting oil prices must attempt to account for these factors.Continue Reading
Because the short-term supply and demand for oil cannot change quickly, oil prices respond quickly to geopolitical and weather events. According to the U.S. Energy Information Administration, for instance, the largest spike in recent history occurred during the global financial crisis of 2007 and 2008, when prices skyrocketed from $60.09 per barrel to $125.22. Weather-related fluctuations are temporary, resulting from the closure of refineries or oil-production facilities during hurricanes and other severe weather events.
Since these factors are often impossible to predict in advance, oil markets are notoriously difficult to forecast, suggests energy analyst Michael Lynch for Forbes. When political conflict or a related event is expected to disrupt the oil market, prices may rise proactively, surpassing the amount expected, given current supply and demand figures. The price of gasoline and other petroleum-based products typically moves in tandem with these fluctuations in the global oil market. Any prediction is subject to error, notes Lynch. He suggests opening up the mind to consider all possible outcomes instead of narrowly focusing on a popular prediction.Learn more about Geography