Reasons for Changing the Price of Crude Oil
Crude oil is essential to the daily energy needs in the United States and around the world because it is refined and used to power everything from automobiles (in the form of gasoline) to heating (in the form of fuel oil). However, crude oil prices are prone to large market swings due to both man-made and natural causes.
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Supply and Demand
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The most common reason for fluctuating changes in oil prices is the basic economic concept of "supply and demand." As crude oil prices drop, more consumers will use oil-based products, and thus the price frequently rises again in order to correct this imbalance in the marketplace. Demand for crude oil rarely falls, especially because there are few alternatives for fueling automobiles. Thus, if the supply of crude oil is low for any reason, prices will skyrocket because the demand remains close to constant.
Natural Disasters
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Natural disasters can impede the flow of crude oil and thus decrease the supply and increase prices. This happened notably during Hurricane Katrina in 2005, when the United States temporarily lost almost 25 percent of its crude oil production.
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Seasonal Demand
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Crude oil prices tend to rise in the summer when demand is higher because more individuals are driving, and prices tend to fall in the winter. However, they do not drop too much in the winter because the demand for crude oil shifts from being necessary mostly for transportation to also being necessary for heating homes.
OPEC
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OPEC (the Organization of Petroleum Exporting Countries) has a significant influence on the price of oil because its member nations control about two-thirds of world's crude oil supplies. Thus, OPEC may choose to intentionally restrict supply and cause prices to rise, such as during the oil embargo of 1973.
Political Unrest
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Political unrest in oil-rich countries can also lead to a decrease in supply and thus a spike in prices. For instance, the 1980 Iranian Revolution and the 1990 Persian Gulf conflict led to increases in the prices of crude oil.
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