Price of all commodities, including crude oil are always determined depending on global demand, and supply factors. There are different industries that use crude oil with their output determining the GDP of a country. When the demand of the crude oil is higher than its supply – the price of crude oil increases, and vice versa.
These demand, and supply factors keep changing as countries may need more or less crude oil depending on a lot of internal factors. The future of the oil market also influences the crude oil price. It is a tight agreement that can provide the buyer with the right to purchase crude oil is a price that is predefined on a date in the future. The speculators always include the future market price that can influence crude oil price.
Most of the times – this price is also affected by the market sentiment. If the speculators come to believe that the price can increase in future then they can snap the future contracts that can change the current crude oil price. Apart from all these, there is OPEC (Organization of the Petroleum Exporting Countries) that can determine the crude oil price according to the production target of the member countries. Some of these countries come with the largest crude oil reserves. As OPEC has the responsibility to manage the oil production, and its targets – they can directly influence the price of it too.
Factors that influence crude oil price
- The global demand of crude oil is a major factor here. The crude oil demand is very high in countries like Europe, China, and USA. Hence, the strength of these countries economies also counts with the demand from other countries like India that influences the price of crude oil.
- Crude oil is not produced by every country but they are imported from those countries, that have large reserves of it. But OPEC manages all the supply of crude oil from the reservoir countries to others. If the supply goes low than the demand of it then it can affect the oil price.
- The oil quality also influences the price because it becomes the core for setting. The higher is the quality of crude oil, the easier it is to refine them and set all the environmental requirements.
- Marketing participants can buy, and sell crude oil through future prices, and options. The hedgers use derivatives against the fall in crude oil prices. They also make profits based on these price fluctuations. It also effects the trading volume that happens on a daily basis.
There are some major classifications of crude oil. There are light, and volatile oils that is considered to be very high-quality. It is known as Class A crude oil because they are highly fluid as they spread rapidly on solid surfaces or water. The comes Class B which is non-sticky. They are a bit waxy, and less toxic than the Class A version. Class c oil is brown, sticky and have similar density like water. But Class D on the other hand is relatively non-toxic, and they do not penetrate porous substances. One can check 5paisa websites to know more about it.