The 3 Main Causes of Oil Price Fluctuation

The 3 Main Causes of Oil Price Fluctuation

Oil prices are volatile; they seem to ebb and flow on a dime. The question is, why? Oil is a precious commodity, and like any commodity, factors like access demand can impact how much oil manufacturers need to sell it for to make a profit. Below, we explain the three main causes of oil price fluctuation and how they affect pricing.


OPEC, shorthand for the Organization of Petroleum Exporting Countries, is a collection of thirteen countries: Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC controls over 50% of the global oil supply and an astounding 80% of the world’s oil reserves. Consequently, they have a big say in oil production and pricing.

Supply and Demand

Naturally, supply and demand also play a big role in the price of oil. When demand is high and stock is low, prices soar, and when demand is low and stock is high, prices fall. For example, at the start of the pandemic, the price of oil fell to the point where gas cost less than $1 in some states. This was in response to the abrupt and dramatic decrease in travel. So why are prices so high right now? Because at some point in the middle of the pandemic, production was slashed. But now, with restrictions easing and more and more people returning to the office and semi-regular life, oil demand is going up, but production still hasn’t ramped up enough to accommodate that.

External Forces

External forces, both natural and manmade, are another common reason for price fluctuations. Natural disasters can cause sudden increases and declines; take 2005 during Hurricane Katrina, for example, which affected 20% of the US oil supply and caused prices to surge by $13. Political instability, including wars, can also cause price fluctuation. At one point, fear of a worldwide economic shock due to the ongoing Russian War made the price of an oil barrel jump to $139, a 14-year high!

As you can see, there are many factors that affect the price of oil. The three main causes of oil price fluctuations listed below may be the most common culprits, but they aren’t the only reasons for increases and decreases in cost.

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