In the current economic and world climate, it can be hard to understand just what really affects oil prices as prices at the pump continue to rise. Unfortunately, it is a bit complicated and there are a lot of answers to the same question. In this article we will attempt to help you understand what factors play into ever-changing oil prices.
Supply
As with any global product, supply inherently affects the price of oil. If, for some reason, supply suddenly gets boosted, that should reflect a drop of price at the pump. For instance, when there were less cars on the road during covid, we saw the price of oil fall into the negative price per barrel because supply was building up. On the other hand, the war in Ukraine is causing a drop in global supply because countries are sanctioning Russian oil, leaving less oil in the global circulation.
Demand
As we mentioned in the above paragraph, demand also plays a large role in the price of oil and the price you see at the pump. Typically, demand only grows as the world population grows and transportation becomes more widespread in more cities around the world. This leads to growth in oil prices. However, during the pandemic, we saw extremely low demand as flights were canceled and less people traveled by any means.
Geopolitics
Unfortunately, it’s not as simple as supply and demand that decides oil and gas prices. Geopolitics play a big role in changing oil prices. If a conflict begins or is perceived to begin soon, gas prices may preemptively rise or fall depending on the situation — well before supply or demand are even affected. The potential effect on their future based on geopolitics is largely what influences changing oil prices.
