With shifting and rising gas prices, more people are wondering. Who is ultimately responsible for setting the price of oil? Is it the refineries? The gas companies? In this article, we aim to help you understand what goes into the changing oil prices, and who is behind the decisions when it comes to prices.
What Affects Oil Prices?
While each company along the supply chain may be deciding in a small way what they are comfortable with when it comes to profit margins, the price of oil is a lot more fluid and affected by more things than a company just deciding what price to charge.
The following things dramatically affect the price of oil:
- Supply and Demand
- Geopolitics
As with any global product, supply and demand inherently affect the price of oil. If supply is boosted, then the price will drop. Alternatively, if the demand increases, then prices will surge. For instance, when covid was at its peak and we saw dramatically less traffic and travel, prices dropped dramatically due to the increased supply and reduced demand.
Demand can also grow due to global population growth and the development in different countries as more vehicles are introduced. This can lead to growth in oil prices as well.
Another factor in determining oil prices is geopolitics. The political climate, especially when an oil-producing state is involved, will ultimately affect oil prices. This is because it affects the perceived amount of future supply or demand. For instance, if an oil-producing country goes to war, other countries expect future supply to be reduced, which can cause prices to preemptively rise.
Who Sets Oil Prices?
While supply, demand, and geopolitics strongly affect oil prices, one organization: The Organization of the Petroleum Exporting Countries, or OPEC for short, controls over 50% of global oil supplies and about 90% of proven oil reserves and can influence prices by increasing or decreasing supply.
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