Q:

How does the world market for oil determine its price?

A:

Quick Answer

The global factors that affect the price of oil include demand, supply issues and geopolitical flashpoints. These factors constantly change, causing the price of oil to increase or decrease.

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Full Answer

Supply and demand in the world market remains one of the biggest factors that influences the price of oil. On the supply side there are a number of things that impact this, according to the Oil Price news website, including the amount of American shale that is produced. The consumption of oil in China is also a factor, as are the decisions taken by OPEC, which is the organization that sets production levels of oil in many of the world's largest oil producing nations, including Saudi Arabia.

Things can affect the demand side of the equation too, including weak economic activity, reports the Economist.

Political events also affect the market for oil, according to the U.S. Energy Information Administration. Historically, the places in the world that have the most oil are also the locations where there is political upheaval. This can affect production levels and therefore prices.

Finally, weather has a part to play. Extreme weather events can disrupt production and supply, while cold weather can increase demand in the short term, which increases prices.

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