Looking to trade oil? Get to know the following 3 factors driving oil prices

Crude oil or called “black gold” because of it’s tremendous potential for investment. Trade oil is not inferior to gold. The price fluctuations are very high and volatile. From $105 per barrel in 2014, oil prices slipped down to $30 per barrel in early 2020.

Of course this opens up a high profit opportunity for oil traders. Especially because online oil traders can get two-way profit opportunities. Are you interested ? Learn first the following factors that drive oil prices.

1. Policy of OPEC and oil producing countries

There are many oil producing countries. Such as Algeria, Angola, Saudi Arabia, Ecuador, Iraq, and other Oil Exporting Organization Countries. Other oil-producing countries, such as Russia, the United States, China, Canada and Mexico, did not join OPEC.

OPEC members work together to determine the stability of crude oil prices by increasing or decreasing oil production. At the same time, the situation and condition of the oil producing countries, both OPEC and non-OPEC, also affects oil prices.

For example, Iran and Venezuela’s political relations with the United States are less than smooth, the Arab oil embargo, the Iraq and Iran wars. Government policies, economic growth, and disasters are also influential because they are related to the second factor, namely supply and demand.

2. Supply and demand crude oil

Supply and demand, or supply and demand, drives the price fluctuations of all goods, including crude oil. The oil supply itself is usually around 1-2 million barrels more than the demand, of course you need a place to store crude oil reserves, which will be used when oil production decreases

The more supply of reserve oil, the lower the price of crude oil in the market. This is because the storage area for oil reserves is limited, so the remaining oil reserves inevitably have to be sold to the market when the storage area is full.

Another factor that affects supply is the condition of the oil producing country itself. For example, oil production could decrease due to conflicts in the Middle East, so that the supply of reserve oil also decreases. The less supply of reserve oil, the higher the selling price of oil in the market will be.

How To Invest in Oil

Talking about oil demand, it is usually directly proportional to the economic growth of a country. Good economic growth is usually caused by the increase in business and industry. If business and industry increase, it means that the use of oil is also increasing, the supply of reserve oil is getting smaller, so that the price of oil will increase.

On the other hand, when economic conditions are not good, for example due to the corona virus pandemic, many industries have decreased production, even closed. This reduced business and industrial activity resulted in a decrease in the use of oil, resulting in an increase in the supply of reserve oil, and a decrease in oil prices.     

In addition, the demand for personal oil use also has an effect. For example, the demand for oil increases during the summer, when many people travel for holidays. Likewise with winter, where the need for oil increases for heating purposes.

3. Development of oil production technology

In addition to storage, oil supply is also related to drilling carried out by oil companies. Technological advances today allow oil companies to produce trade oil more quickly and more. An example is the invention of the fracking technique that allows oil companies to drill shale oil from rock.

Because this technique makes it easier to drill for oil, the supply of oil will be higher than the demand, so that the price of oil will also fall.

Those are the three main factors driving crude oil prices, or crude trade oil. Don’t forget to find out the correlation between oil and other commodities with major currencies here.

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