Can someone please explain the reason for dramatic increase in price of oil?

[Jackass] · 08-03-2011 05:04PM #1

I'm always very sceptical and cynical about the sensitivity of the price of oil to global economic and political circumstances.

Can someone please explain how Lybia, a country who provides 3% annually of the worlds global oil supply, can, whilst still producing oil, cause an increase in the global oil price by over one third (over 33%!!) because of political instability??

Is this just a result of panic buying in the global market rather than a supply issue, and also, how do markets over react to any issues effecting oil any time - is this just trade markets looking to cash in??

I don't understand how this market is so volatile and essentially, so unresponsive to basic economic rules regarding reactions to supply and demand.

It seems to be such a complex commodity.

andrew · 08-03-2011 08:24PM

Prices aren't just determined by supply and demand at a particular point in time. For a commodity like oil, which can be stored, prices now are also affected by future levels of supply and demand, or rather by what people think will happen to supply and demand in the future. While the problems in Libya havn't dramatically reduced oil supply, the fear, I think, is that protests will spread to, and reduce supply from Saudi Arabia, and as illustrated by the price increases already, even the potential that this will happen is enough to push prices up.

FISMA · 13-03-2011 05:53AM

Don't forget that every time Obama decides to print a few billion more greenbacks, that is not the fault of oil companies.

When oil is priced in dollars, why should they accept a weakened currency for the same volume of oil?

Oil doesn't always "go-up." Sometimes the buying power of the currency in which oil is traded goes down.

lopppy · 16-03-2011 02:34AM

Big fall in oil prices over the last few days after the Japan disaster

LAVADUDE · 16-03-2011 07:00PM

Oil does not derive all its prices from traditional supply & demand, rather its more speculation and commodity investors
http://www.msnbc.msn.com/id/36107405/ns/business-oil_and_energy/

TokenWhite · 17-03-2011 11:20AM

lopppy wrote: »

Big fall in oil prices over the last few days after the Japan disaster

Why did it fall? If you don't mind me asking. Only reason I can think of is that the crisis has meant that Japans consumption of oil has decreased but I would have thought that would increase the price of oil in the longer term, considering that it will have to rebuild.

Caribs · 25-03-2011 06:31PM

Think Lavadude has hit the nail on the head.

Speculation drives huge price moves and those that sell short and sell long are betting on moves that by themselves create moves in the markets.

I'm far from an expert so am prepared to be slagged off but to my mind the phrase "the markets" wreck my head. The unknown face of the markets drives prices up and down through speculation. Apparantly we benefit as many of the funds that benefit are pension funds etc so in actual fact by us paying more for petrol/diesel for example means we are saving for our pensions - I don't buy it to be honest but I'm not quite with Jim Corr just yet.

UsernameInUse · 26-03-2011 09:01PM

LAVADUDE wrote: »

Oil does not derive all its prices from traditional supply & demand, rather its more speculation and commodity investors
http://www.msnbc.msn.com/id/36107405/ns/business-oil_and_energy/

Bingo.

Oil prices operate on a shock-price system. In part, there is also the Profit-price influence where monopolies will charge just about anything because of the lack in competition.

Can someone please explain the reason for dramatic increase in price of oil?

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