The price of oil and gas can change on a dime, but there are a number of factors that affect the price both up and down, including production levels, supply/demand, and many others. Here’s an overview of what affects oil and gas prices so you can feel more in control when they rise or fall unexpectedly.
When it comes to prices, markets are by far one of the biggest factors. When supply is low or demand is high, prices go up. The same goes for when there’s a significant weather event affecting oil production or other geopolitical events happening in different parts of the world that affect either availability or demand. Other market fluctuations can include things like changes in interest rates or even changes in tax policy. While these are perhaps more outside forces than market forces, they can have an effect on oil and gas prices nonetheless. So be sure to keep an eye on your local, national and international news channels to see what’s affecting oil pricing where you live – that way you can anticipate shifts better than just reacting to them after they happen.
You probably think oil prices are based on supply and demand, which is part of it. But there are other variables involved, including geopolitical influences, wars, sanctions and unrest in countries that produce a lot of oil. For example, you might expect Venezuela’s oil production to rise after a change in government—but it has fallen by more than 1 million barrels per day since 2013 because of social unrest. Iran’s crude exports have been falling every month since early 2012 because of international sanctions over its nuclear program—about 2.5 million barrels per day in 2016 compared with 3.4 million in 2011. On top of all that, increased drilling for shale gas in North America has added more supply to an already well-supplied market; U.S.
How do supply and demand affect oil prices? How about gas prices? And what’s supply anyway? It may seem like such a simple concept: there is more of one product (say, oil) than another (say, gas), so we charge more for it. But what determines how much supply or demand is available to meet market needs? First things first—what are supply and demand, really? From Wikipedia: Supply is an economic concept used to refer to quantities of a particular good or service that producers are willing to sell at various prices in a given time period. Demand refers to quantities of a particular good or service that buyers are willing to buy at various prices in a given time period. The price at which quantity supplied equals quantity demanded is called equilibrium price.
The supply of oil and gas is ultimately what dictates price. If supply is strong, prices fall; if supply is weak, prices rise. Although demand affects price to some degree (the more people who want to buy it, generally speaking, the higher its price goes), it’s really about how much oil is available at any given time.