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Oil trading-What affects oil prices?

By Guardian Nigeria
22 July 2022   |   5:59 am
Crude oil is a commodity that people trade widely and use. A trader who bids on oil futures contracts in things based on the future supply and demand for oil perceptions heavily influences its price. People trade futures contracts and oil derivatives daily, influencing the price. These future contracts cause the oil price to change because…

Crude oil is a commodity that people trade widely and use. A trader who bids on oil futures contracts in things based on the future supply and demand for oil perceptions heavily influences its price. People trade futures contracts and oil derivatives daily, influencing the price. These future contracts cause the oil price to change because it depends on how trading went that day. Therefore, you can take advantage of the demand for oil and start trading on platforms like oilprofits.de. So, numerous factors affect the oil prices, which include:

Demand
In recent years, industrial production and strong economic growth have boosted the oil demand, as seen in the increased demand in the fast-growing developing nations. Other important factors that affect oil demand include transportation, seasonable changes, and population growth. For instance, oil use increases during summer travel seasons and when people use more heating fuel in the winters. 

Supply
OPEC has tried influencing global oil prices by limiting crude supply for decades, with varying degrees of success. In recent years, OPEC’s power to set prices was undermined by the developing shale supply in the continental U.S. Still, OPEC’s alliance with Russia and other exporters under the OPEC+umbrella reinforced it. Governments, oil companies, and speculators continue to pay close attention to every OPEC+ decision. On the other hand, OPEC’s policies may be affected by also geopolitical developments. Also, some of the world’s top oil producers are politically unstable. 

In the past, supply distributions triggered by political events have caused oil prices to shift drastically. Technological innovations and financial conditions can also affect production volumes and costs by influencing crude oil supply levels. For instance, advances in hydraulic fracturing technology have vastly increased the supply of crude extracted from rock, with the so-called shale oil making the U.S a net exporter of crude oil and related products.

Geopolitics
Since the big oil-producing countries determine supply, tension with one of those nations can cause significant problems. As a result, if there is a war or conflict in oil-producing regions, crude inventories could seem threatened, ultimately altering the price of oil. As a result, geopolitical has traditionally been a factor in oil prices. 

If situations in the Middle East or other oil-rich regions of the world would flare up, causing a dispute, you would generally see a little bit of an uptick in oil price. Consequently, the dispute risk only would affect supply because canal or pipeline workers would go on protest. 

What’s more, oil prices soared when the U.S invaded Iraq. This Middle Eastern country produces oil, and with instability in the region, people weren’t immediately sure what would happen to the supply. That explains how geopolitical factors significantly affect oil prices. 

Market Speculation
Futures markets set oil prices, implying that market speculation about future events could impact oil prices. For instance, if China builds more nuclear power plants, oil demand could drop substantially.

Also, an increase in global fracking could further increase oil prices and presumption in the oil market. Nevertheless, with various world governments, like France, Germany, and Ireland, banning fracking, the fracting industry expansion and development as another source of oil is uncertain.

The Bottom Line
All the above factors significantly affect the price of oil in one way or another, so before beginning to trade oil, take a look at the above features and thoroughly research the process.