What influences the price of oil?

Question

what influences the price of oil and what are the possiblities for what might happen in future?

Answer 1

Two things.

Supply and Demand.

Everything else comes down to those (even taxes and restrictions on drilling as they merely change one of those factors).

Answer 2

The End of Times.  And it has to end where it all began in the Middle East.  And it will be all about oil.

Answer 3

The number one variable is the cost of crude, which fluctuates based on demand and availability.The next largest cost, in the USA, is federal taxes, state and local taxes, which are about three times more than the oil producers make in profit.

Answer 4

supply and demand.  as was said earlier.

however, the expected supply and demand are also important.

that's what speculators work on.

when there's a big hurricane about to come into the Caribbean, you'll notice the price of oil go up before it gets there.

just in case it does some serious damage, and causes a decrease in supply.

in truth, it's sort of like going to Las Vegas.

Answer 5

Supply and Demand are a major part to be sure but this latest go around was caused by speculators investing in Oil futures.

They speculated that oil prices would rise and the more they would rise the more they speculated !

Just in the last week or so drilling in the forbidden zones has been entertained and the speculators have been selling so as not to lose money on there speculations !

Makes you think, that was just talk.

What would happen if we allowed them to drill ?

Answer 6

Oil is a "commodity" that is readily supplied by many countries, and commodities tend to either be in over supply or short supply.

When there is a short supply, prices bid up to the highest that the market sustains.  When supply is ample, prices sink to the lowest that producers will accept.  There is no happy middle ground.

That is why commodity prices (not only oil, but cocoa, metals, etc.) are "volatile" and why it is so easy to lose your shirt in commodities trading.

So along with traditional supply and demand economic issues, there is also an incredible incentive to manipulate the market for a commodity.

For example, everytime Mahmoud Ahmadinejad shoots off his mouth and talks extinction of Israel, oil prices go up.  Iran pursues an atomic bomb and openly announces every milestone in their program, oil prices go up.  

Every oil exporting nation would love to see Iran get wacked, because oil prices would go up for them.  They don't want to see Iraq stabilized and pumping more oil that would bring prices down.

We are talking manipulation of governments, funding "terrorists" and "insurgents" that in actuality are agents of industrial warfare.  (The Belgian Congo and cobalt metal prices are an example.)

However, the flip side of high prices is that all the uneconomic fields and oil deposits that were ignored, are now developed, that increases supply.  At $140 a barrel, all sorts of oil comes out of the woodwork.

Stuff made with oil gets more expensive, manufacturers pass on the higher costs, prices among goods and services re-adjust, and life goes on.

Answer 7

Oil prices are influenced by many factors.  The biggest thing that influences the price of anything including oil is the balance between supply and demand.  Recently the worldwide demand for oil has risen mostly due to the improved standard of living and increased industry in India and China.  The supply of oil being pumped from the ground has not kept pace with the increased demand so there are more consumers bidding for the same amount of oil.  This drives the price up just like bidding at an auction.  As the price has risen people are driving less so the demand has dropped.  This has caused oil prices to drop over the past couple weeks because that balance has shifted.  My best hope for the future is that oil production will increase because of drilling in America and that more fuel efficient cars and alternative heating fuels like wood pellets will decrease demand.  These two factors could change the balance between supply and demand  enough to keep gasoline prices below $3.25 / gallon for several years.

The second biggest influence on the price of oil is the value of the American dollar against other currencies.  When the value of the dollar is low as it is now the price of all imports including oil rises.  There are 2 major influences on the value of the dollar.  One is the same supply and demand  principle that influences the price of oil.  When Americans buy imported goods the rest of the world has plenty of American dollars.  If people would buy American goods the money would stay here and the rest of the world would want American dollars more.  The other problem with the American dollar is that it is backed by the American government.  The American government is beyond broke and is deeply in debt.  The way to fix that is to stop wasteful government spending and pay down the government debt.  That would be a painful process but worth it in the long run.  With the senate and congress we have now I don't see much chance of that happening.