The question about what really drives the oil prices is now a concern to many people. It is noted in many countries that oil controls the economy. Should the cost oil increase, the costs of other products too are affected. It is, therefore, a concern for many people on what exactly drives oil prices. Yes, there are other fundamental determinants of the price which most of the people are aware about. The EIA rules out that about two-thirds of your costs of oil are affected or rather determined by crude oil cost. And this is what basically most of the people are aware of. The question is apart from this, what another factor really determines the cost of the oil? This article will explain some of these factors that really determine the cost of oil.
There are many factors affecting the oil price. These elements can change with the seasons. And as a result, they influence business and consumer buying decisions. The following are the factors that determine the oil price.
- Economic growth
This is one of the factors that affect the cost of oil. Naturally, as the economy grows, so does the price of oil. The growth of the economy is well defined by growth in industries and commercial markets. These will definitely cause an increased demand for this resource. In a strong economy that reveals good growth, industries and companies experience an increase in demand for their commodities. This, in turn, raises the wanted level of oil as a source of power. Therefore, as more sectors in the economy, demand for oil, the price increases invariably. Most industries use natural oil, which most of the consumers are not aware of. Pharmaceutical companies, for instance, use butane, ethane, and propane to manufacture consumer health products. Besides, industrial companies use natural oil to manufacture cleaner burning fuel source like gasoline. Therefore, oil firms get high demands should there be economic growth.
- Competition among resources
This is the other factors that really determine the cost of oil. The use of natural resources among energy companies and industries changes regularly on the availability of the resources and price. The use of natural oil by power companies is rapidly increasing. This is because the fuel has a low-carbon footprint. It is also due to its domestic availability. Therefore, due to the large volume associated with the consumption of natural resources, even a slight decrease or increase in price can definitely be conspicuous enough on demand.
- Oil storage
This too is one factor that really affects the cost of oil. The underground field locations, known as storage levels, are the basic link in the supply chain for delivering natural oil to homes, companies, and businesses. Just a slight increase in fees associated with storage levels can, in turn, cause an increase in oil price.
- Oil supply
The oil supply is another factor that determines the oil price. Just as the law of supply states, should there be an increase in the supply of the oil, there will be a corresponding decrease in the price too.
Generally, those are the factors other than the oil and gas price fluctuation that do determine the price of oil.