Factors contributing to movements in the price of Crude Oil

Another common commodity which is often found traded on CFD & Spread Betting sites is Crude Oil. In the modern world Crude Oil has become one of the most important commodities due to its crucial role in many industries and power production. Crude Oil is also an attractive commodity for CFD traders and Spread betters due to the high volume of trading witnessed on a daily basis and significant price volatility. It should be noted that Crude Oil also has a very active futures market. Today we are going to look at some of factors that contribute to movements and fluctuations in Crude Oil prices. 

OPEC 
OPEC stands for the Organisation of Petroleum Exporting Countries and consists of 12 member states. OPEC works effectively as a cartel and is somewhat unique factor to the crude oil market is OPEC (there was a now defunct similar organisation for Copper). Essentially OPEC has the power to dictate how many barrels of Oil each of its member states can produce a day. In the past OPEC was heavily criticized for its ability to effectively control the price of Oil. But more recently it’s influence in controlling Oil production has significantly decreased, this in part due to large new Oil reserves being discovered outside of OPEC nations and the opening up of Russia’s vast Oil supplies to the World Markets after the Collapse of the Soviet Union. Another factor has been OPEC’s increasingly dwindling influence over it’s member states, comments particularly from the Saudi’s have suggested that certain OPEC members states will be willing to meet market demands and dismiss the quotas imposed by OPEC. Currently OPEC member states make up 79% of Oil reserves and 44% of current Oil production.

Natural Events & Disasters, Political Events 
While not particularly common these events can have a huge effect on Oil production and therefore have a huge effect on Oil prices in the global market. One example would be recent tensions in the Middle East between Iran & US over the strait of Hormuz, which at one point looked like it could have a huge effect on global oil prices (read here). An another example of such an event is when the US either experiences a hurricane warning or an actual hurricane to its Oil producing areas. These have been known to lead to quite significant spikes in overall levels of Oil prices. A really interesting article on this can be found here.

Speculation 
The rise in Oil futures markets have made many commentators state the increasing role that Speculation now plays in the overall price of Crude Oil. While Oil futures can be of important economic value it also increases the role that speculators can take. This only increases the attractiveness of trading Crude for those interested in CFD Trading & Spread betting. 

Inventory 
Many Oil producers and consumers build large Oil inventory, in case of emergencies and for future use. Inventories can also be built up for other purposes, these include arbitrage opportunities and selling at higher price levels. The US government in recent years have also built up significant Oil reserves. Any significant changes in these reserve and inventory levels can also have a significant effect on the price that crude is trading.

Demand 
Crude oil is used in the production of almost all the products that you see in your shelf. This means that by probably the biggest factor in Crude oil prices is demand, in recent years this extra demand has been fueled more and more by emerging economies. This means that announcements that China’s manufacturing output is slowing down and in some areas has decreased have had a negative effect on the price of crude oil. Economic news from the BRIC economies more importantly that concerning manufacturing.

Admin

Leave a Reply

Your email address will not be published.