Factors Controlling Crude Oil Prices (Part 3/3)

The pricing of crude oils has become increasingly transparent from the 1990s onwards through the use of marker crudes such as:

• West Texas Intermediate (WTI – USA)
• Brent (Europe and Africa)
• Dubai and Oman (Middle East)
• Tapis and Dubai (in Asia).

Prices of crude oil markers and petroleum product markers are affected by a myriad of factors including:

• overall supply/demand for crude
• supply/demand for petroleum products
• freight rates
• competition in the crude markets
• competition in the regional and domestic markets for petroleum products.

 
After taking a look at the influence of OPEC decisions(Part 1/3) ,  Impact of Supply and Demand (Part 2/3) ,  Poor Data or Information (Part 2/3). Lets talk about some of the other miscellaneous factors that can affect the price of crude oil. Other Factors Affecting Oil Prices 
 

Oil pricing is also affected by the following miscellaneous factors, such as:

• ·Oil extraction and processing costs: Higher costs result in higher petroleum prices.

• · Peak oil concerns: Global concern on reaching peak oil (highest extraction point) also increases oil prices.

• · World crises in oil-producing nations: This leads to huge price spikes as observed in July 2006 during the   Israel-Lebanon war.

• ·Factors affecting refining capacity: Natural factors such as hurricanes and floods hamper the refining process, especially in coastal reserves. It results in oil price spikes and directly influences the cost of refining.

• ·Tightening of world oil market: This happens in terms of lowered inventory.

• ·Political and Economic Factors: Economic factors generally have a long term effect on oil prices. However, in the Middle East and Gulf regions, they result in immediate fluctuations. Political factors have different implications. Expected events do not create much difference in oil prices but unexpected events do.

• ·Taxation: Taxes form a considerable component of oil prices. The rate of taxes varies from country to country and could be as high as 50%.

Oil prices are vulnerable to both supply and demand fluctuations and external shocks that can be natural, political or economic. In the coming years, this will remain a major challenge to overcome for both oil producing countries and the world economy as a whole. 

Note: this topic is under three parts - Part 1, Part 2 and Part 3  (click to see the all three parts) 

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Posted in: Petroleum Management,Pricing