Why oil prices rising and drop? General analyzing
Oil is a very important commodity in human life, world oil prices if we see frequent changes, whether it is up or down, why are prices of oil rising? and why it’s down?
The rise and fall of oil prices will certainly also affect the costs of a company, the higher the price of oil, the higher the company’s expenditure.
Because all vehicle always needs oil to operations and is also all machines need oil inside.
The need for oil is in each country, where oil can be a problem in the world because there are countries that do not have oil mines but they have the technology for oil drilling.
So they will look for countries that have oil resources.
However, there are some countries have become rich because of the abundant oil resources and of course provide benefits to oil exports to the world.
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What affects oil prices?
There are several factors that can affect oil prices, including
- The condition of countries that have oil sources.
- Oil companies.
- Global oil demand.
- And the discovery of new technology and new oil sources.
OPEC (The Organization of the Petroleum Exporting Countries) is an oil cartel established in Baghdad, Iraq, in 1960.
OPEC holds an important position as a cartel that has a role in influencing the supply side in world oil trade.
So it’s not surprising that President Trump accused OPEC of manipulating oil prices through his tweet.
Although oil production in OPEC countries constitutes less than 50% of total world oil production.
But their united position as a cartel strengthens the collective position of the non-OPEC members.
So if there are OPEC meetings and comments from member officials can be a factor that can trigger changes in oil prices.
Besides the condition of oil-producing countries can also affect the price of oil.
For example, if the country in war, of course, this will result in disrupted oil production and reduce oil supply which can cause prices to rise.
Oil companies also have an influence on changes in oil prices.
Because they also need operational costs in processing oil which they also have control over the price of oil produced by the company.
Demand for oil in the market is also one of the reasons that influence the rise and fall of oil prices.
Increased demand will cause prices to rise and a slight demand causes prices to fall.
The discovery of new technologies that make oil drilling effective can also affect oil prices.
With more sophisticated machinery production costs can be reduced, which results in a cheaper output.
Main factor trader to determine oil price
Limiting global oil supplies might control oil prices.
For example, OPEC adopted this policy in 1973, where they limited global exports to only 61%.
But American oil companies make the double supply of oil, thus making the market flooded with supplies.
Some traders have analyzed and made sell on oil which following that oil prices have really gone down because of too much supply.
The second factor that concerns traders is the possibility of future supply
The possibility of future oil supplies is related to oil reserves in the world.
And this trader will refer to the world’s largest oil-producing countries by reading the number of existing reserves.
The trader will estimate whether there is a possibility of prices going up or down because of reserves that might be used or not.
The third is demand, in certain seasons a country may need more oil so that it will increase demand which can trigger price changes.
For example, in the summer the vehicle will need more oil, or while on vacation driving, a lot of consumption for vehicle fuel.
Why Did Oil prices drop?
Previously we already knew that OPEC was one of the organizations that could influence oil prices.
But on the other hand Non-OPEC countries like America and Russia do not want to join OPEC, they have their own reasons in this case.
America is a country that relies on exports in manufacturing so they need more oil.
So they will be happy if oil prices are low, and this is what makes their oil production flood the market, causing prices to fall.
While Russia they do not join OPEC because their oil sources are managed more by the private sector, so the government cannot control oil supplies in the country.
If America produces oil on a large scale, it will flood the supply on the market and this will cause prices to fall.
Some analysts say that oil prices will not be stable if none of the oil companies in America fall into bankruptcy
Generally, the cause of the oil price drop is:
- Demand has decreased
- Strengthening the value of USD.
This oversupply is a result of America increasing its oil production
While OPEC is not reducing its production to make market balance.
This is because they do not want to lose the market because of competition with American companies.
This condition causes oversupply and causes prices to drop.
Why can oil demand decrease?
Global economic conditions are not always good and this is also one of the reasons for falling oil demand.
One reason analysts say is that China is facing an economic slowdown and is impacting declining oil demand.
The value of the USD also affects the price of oil, because like other commodities are valued in USD.
So if the USD currency rises there is a possibility that oil prices will also decline.
Let take a simple example.
If the USD strengthens then America can buy more oil.
Whereas if the price of oil goes down it may be because America spends a lot on the USD thereby weakening the value of the currency
Why are oil prices rising?
World oil prices always go up and down, and this is the reason some traders choose to trade Oil on futures contracts.
Because they can make a profit from the difference price of oil, even up or down.
Thus the trader will analyze the cause of rising oil prices.
In the analysis of oil prices, as we already know that OPEC is one of the factors that make oil prices rise or fall.
Usually, traders will see how the comments from OPEC officials will be their future plans for oil production.
When they limit the amount of oil production then this can cause supply to decrease.
Of course, this will be a concern of traders that the possibility of prices will rise.
In addition, rumors may also cause oil prices to rise.
For example, an agency announced that next year they need for oil will increase more.
So some may have started to start buying oil as a reserve before prices rise.
This can also drive oil prices up.
On the other hand reports of shrinking oil reserves can also be a cause of rising prices, let say America reports its declining oil reserves.
The decline in oil production by oil-producing countries can also trigger price rises.
For example, Iran which is sanctioned by the United States, of course, has an impact on its country’s oil production, because of export restrictions due to American sanctions.
In general oil prices are rising:
- Decreasing supply
- Increasing demand
Impact World crises into oil prices
Crises of the world can also affect oil prices, it happens because dramatically, it will allow a decrease in oil production resulting in rising prices.
Traders will feel anxious about the crises of the world so they tend to buy oil and increase demand as a result of concerns oil prices will be much higher.
For example, when the US imposed sanctions on Iran so that the country closed its oil production, and received a response from the United States, it would open force by the military.
As a result, the price of oil rose from $95 per barrel to $100 per barrel.
Conditions that are unsettling the world can also cause oil prices to rise.
The chaos that has occurred in several Middle Eastern countries such as Libya, Tunisia, and Egypt, causing investors to unrest if oil supplies will decrease.
And the effect of this condition causes oil prices to rise above $ 100 per barrel even to $ 113 per barrel.
The war between Lebanon and Israel also caused prices to rise in 2006 from $ 70 a barrel to $ 77 a barrel.
Impact disaster into oil prices
Natural disasters are something that is not expected, this condition can not be predicted accurately by humans.
But if the natural disaster causes major damage to oil refinery companies, this will certainly cause a decline in world oil supply.
For example, when the Hurricane Katrina disaster caused oil prices to rise by $ 3.
This was due to damage that caused Katrina refinery, which provided 19% of the world’s oil supply.
Flood disaster in the Mississippi River also caused oil prices to rise by $ 3.98 a gallon.
This is due to damage to oil refineries due to floods that hit.
From these natural disasters, it can be concluded that if it causes damage to the oil refinery infrastructure that is part of the production.
It can have an effect on rising oil prices.
But if the natural disaster does not occur in an oil-producing country, then there is no effect on the supply, and the effect is not directly on oil prices.
Oil is a necessity in almost all countries, this commodity is also traded with margin trading like in forex.
But the risk of using margin trading is very high, but it also provides potential high-profit.
By prioritizing the way of trading with fundamental macro analysis of oil-producing countries and also companies engaged in oil.
This will provide convenience in conducting speculation on oil commodities.
The way of trading is the same as forex trading.
It uses the platform provided by the broker to conduct transactions in the financial markets.
Some brokers have provided oil trading instruments on futures contracts.
The most common are crude oil and brent.
And this can be one of the traders’ choices for trading oil on the spot forex market.