The Price of Oil

The Price of Oil

  • Like every commodity, the price of oil is a consequence of the interplay between supply and demand. Also, there is the economic environment that can lead to adverse longer-term changes.
  • Thirteen countries that produce oil around the world make up OPEC (Organisation of the Petroleum Exporting Countries).
Members of OPEC: 

Algeria, Angola, Guinea, Gabon, Iraq, Iran, Kuwait, Libya, Nigeria, Congo, Venezuela, UAE, and Kingdom of Saudi Arabia(Leader).

  • OPEC covers almost 40% of the global oil production.
  • The rule which it follows to control the price of the oil is when supply decreases but the demand remains constant and high, the supply becomes automatically more valuable and hence expensive.

Why does the price fluctuate:

  • OPEC usually controlled the supply and hence the price for their own profit for the most part. 
  • But, in the last 5 years, other countries have been producing and exporting oil to supply the global demand, and hence the rates have been nominally low.
  • Environmental regulations and difficult geographical circumstances may raise the cost of production and hence contribute to the pricing factor.
  • The political stability of a country also determines the production and hence the cost. For example, Libya, Syria, and Yemen have almost dropped out of production as the country is struggling with deep political instability.

(The Hindu)

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