Oil Markets Explained

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Oil prices have been extremely volatile in recent years. There are many factors explaining the price of crude oil and related commodities like natural gas, heating oil and gasoline.

Here is a great video explaining the basis of energy market dynamics.

The video states that oil prices are primarily influenced by the following factors:

  1. Demand from industrial and consumer applications including transportation, heating, agriculture, chemicals, manufacturing, etc…
  2. Cartels and multinational corporations influence over the production process and rent seeking behavior.
  3. Geo-political games including nationalization of oil production in certain countries.
  4. Renewable Energy Sources

Recent developments and dynamics include the following:

  • The OPEC cartel has been working to keep oil prices low by greatly increasing supply in a bid to hurt emerging competitors and securing its dominance over energy markets in future years.
  • In recent years, Russia has increase domestic production in times where OPEC has decreased production.
  • By contrast, China has worked to establish strong ties with African nations in exchange for drilling rights to secure its domestic supply.
  • The US has used fracking technology to increase domestic production to reduce dependence on OPEC
  • It will be difficult for renewable energy sources to flourish if oil prices are keep artificially low