After taking a look at the influence of OPEC decisions(Part 1/3) in the price of Crude. Here let's talk about two more factors - " Impact of Supply and Demand" and "Poor Data or Information"
2. Impact of Demand and Supply
The global oil market prices are primarily influenced by demand and supply forces. The level of supply is largely dependent on the availability of oil in the reserves. Supply shortage causes an upward movement in the price pressure.
2. Impact of Demand and Supply
The global oil market prices are primarily influenced by demand and supply forces. The level of supply is largely dependent on the availability of oil in the reserves. Supply shortage causes an upward movement in the price pressure.
This may be due to factors such as
- unplanned refinery shortage
- unforeseen demand increases
- pipeline problems
Supply levels are established by OPEC to a large extent because market demand and consumption levels in the US influences oil prices drastically. The demand for oil spikes during peak seasons, particularly during the summers. This is because it is usually the season of winters and vacations. So, the demand for heating oil escalates.
Major petroleum exchanges are
- · New York Mercantile Exchange
- · International Petroleum Exchange in London
- · Singapore International Monetary Exchange
Movements in these exchanges and speculations on oil futures also have a significant bearing on oil prices.
3. Poor Data
Although oil prices have become more transparent over the years, information about crude oil consumption and production has not improved both in quality and timelessness. On the demand side, data on the consumption of oil, even those for OECD, are uncertain, subject to major revisions, and published with a considerable lag. This problem is becoming worse with the increasing importance of some developing countries such as India and China as major oil consumers with even less reliable data.
On the supply side, the dominance of less transparent national oil companies and the uncertainty about OPEC production levels (OPEC must rely on ‘secondary sources’ to find out what its own members are producing) increases the uncertainty about oil production.
Furthermore, the advent of many small oil producers on the oil scene increases further difficulty of collecting reliable and timely information. The quality of inventory data is also subject to uncertainties and revisions.
Since in tight market every barrel matters, uncertainties about supply and demand contribute to the volatility of oil markets both through magnifying the oil gap and increasing speculation. Furthermore, unreliable data may induce OPEC to misinterpret the market’s direction and pursue policies that add to the uncertainty and compound volatility. 
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