Home Business 4 Main Factors That Determine Oil Prices – 2021 Guide

4 Main Factors That Determine Oil Prices – 2021 Guide

by Tracy Finke

Out of all the commodities in the world, perhaps the most precious and also the one most prone to change is the crude oil economy. Crude oil prices are known to suddenly go up or collapse down which makes it one of the trickiest commodities to invest in. Add to it the current market condition of crude oil and you’ll realize why many investors are wary of investing in it. The crude oil market has been dipping since 2014 and hasn’t had a chance to recover or rise since. The pandemic escalated the situation by imposing travel restrictions and trade regulations.

As such, many investors are confused about whether they should invest in crude oil or not. They are also worried about whether the crude oil market will go up again considering the global situation right now. However, many analysts think this is a great opportunity to invest because they predict that crude oil prices will surge again as soon as the pandemic ends.

There are also CFDs and futures contracts to help investors invest in crude oil even if the market is down. Analysts heavily recommend oil investors to invest in oil right now so that when the prices start hiking again, they’ll be the ones making profits. If you haven’t invested in oil before and need help, then we recommend you click on this go url and get started.

However, it can still be baffling to invest in oil if you don’t know the factors that affect it. To solve that, in this article, we’ll list down several factors that determine the flow of the crude oil market so that your crude oil investments are wise and safe.

1. The economy and GDP of a country

img source: financialexpress.com

One of the major factors that drive the need for crude oil is its dependence on the country’s economy. Countries like India, China, and the USA are huge consumers of oil and as their economy flourishes so does their oil demand. However, due to the recent recession and economical crisis, the industrial demand for oil was significantly lowered. What this did was cause the value of crude oil to plummet even more deeply in the commodity market.

The reality of the fact is that the crude oil market is oversaturated with supply that economies of major oil consumers haven’t been able to use. When a country has a poor economy, the average household and industry also have a poor economy which makes the consumers lower down their oil usage to reduce costs. On the other hand, when a country has great economic growth that is only going to increase in the future, it increases the import of crude oil from the countries making its value rise.

2. The automobile world’s shift to electricity and fuel efficiency

img source: nytimes.com

All kinds of automobiles, may it be bikes or cars or trucks, are being improved each day to save more fuel and be as fuel-efficient as possible. While this is great for automobile owners since they have to worry less about their car or bike’s mileage, it hasn’t helped with the global crude oil crisis. The thing is, if automobiles were to be more fuel-consuming than average then the crude oil supply will finally start depleting and oil prices will rise again.

This won’t be happening any time soon, though, as companies only serve to please their customers and the customers prefer automobiles that drive more by consuming less fuel. With traveling restrictions imposed, the need for oil has dipped even further than imagined.

The advent of electric cars is not helping the situation either. Tesla, a major electric car manufacturing company, has convinced a majority of people that electric cars are the future and they should be used instead of vehicles that are fueled by traditional sources of fuel such as petrol or diesel. With electric batteries getting increased capacities with each passing day and the design of electric cars being improved constantly, they have become a major threat to traditional fuel cars and also a big factor that indirectly determines oil prices.

3. Environmental concerns about the use of fossil fuels

img source: nationalgeographic.com

Environmentalists have always rallied against the use of fossil fuels. The carbon emissions that fossil fuels create are a huge problem for our environment. More people are realizing it each day as the effects of pollution have been severely affecting the planet with global warming and air pollution. All of this has led people to search for alternatives for fossil fuels in every industrial sector.

We have seen this with the automobile sector already where electric cars are now being used widely and also the power sector where an increasing amount of industries and plants prefer more environment-friendly energy sources instead of using crude oil and fossil fuels. This environmental concern was authorized by the Paris Climate Accord which regulated the use of fossil fuels and drove the demand for crude oil to a lesser extent causing the commodity’s value to dip further.

4. Natural or man-made disasters

img source: insurancejournal.com

Perhaps the most impactful change that shakes the crude oil market is a natural disaster. Just taking the example of the pandemic where all governments were forced to impose travel restrictions and shut down industries, the demand for oil also decreased significantly.

This resulted in a global oil supply glut as the supply kept coming but there was not enough demand to utilize it, causing the oil prices to drop into the negative territory. While oil producers have adopted their supply levels and oil prices aren’t in the negative territory anymore, it’s still important to note that the pandemic left a bad mark on the oil market scaring potential investors away.

Back in 2005, when the USA had just started out producing significant amounts of crude oil, Hurricane Katrina hit the coastal areas of the USA and affected 25% of its crude oil production. The condition was worsened when Hurricane Rita hit shortly after that and caused further damage to the USA’s oil production. Following the shortage of oil production, the fuel prices in the USA sextupled and with the media’s exaggerated portrayal of the situation, caused mass anxiety among the population.

Conclusion

There are many factors that determine oil prices and it’s your job as an investor to understand these factors and make a wise oil investment. We hope this article helped you out, and if it did, please consider following our website for regular updates as it will help us out immensely.

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