Crude Oil Price Fluctuation in the International Market

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Crude Oil Price Fluctuation in the International Market
1. Introduction
The global economy considers oil as one of the significant energy source for the
development of industries. The importance of oil has promoted an increase in the demand of the
commodity by most countries as they endeavor to promote their economies. The key role that oil
plays in the global economy implies that price fluctuations of the resource affect the economy.
The approximate consumption of oil as a source of fuel amounts to over 40% of the world
energy. The commodity however, faces uncertainty in the supply and the international market
prices. Oil crisis began since the 1970s which led to the devastation of the global economy. The
costs of the fossil fuel have been experiencing high rates of price fluctuations especially in the
21st century. The prices for instance, alternated from 49.51 dollars per barrel at the beginning of
the year 2007 to 142.95 dollars per container in July 2008 (King, Kathleen, Ai Deng, and David).
The value declined to a cost of less than 40 dollars for each barrel. There is need therefore to
conduct an analysis of the factors that affect the international prices of oil. This report intends
to discuss the fluctuations of unfinished oil prices in the global market. The report shall describe
different factors that affect the costs of the resource such as demand and supply by the producing
and importing states. Among the factors that this report intends to describe is the imbalance

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between supply and demand of crude oil in the market, the effect of the United States dollar
exchange rate, geopolitical instability and the opportunistic trends for the future markets.
Variations in the value of the petroleum commodity in the international market may also
influence the welfare of a certain economy in relation to surpluses of the consumers or producers
of the product. This report also explains the impacts of oil prices on the economy of various
countries.
2. Factors that Led to Oil Price Fluctuations
Imbalance between Supply And Demand of Market
The relationship between the supply and the demand of crude oil in the market has a
direct influence on the prices of the commodity. The existence of a supply-demand imbalance
would as such trigger fluctuations in the international oil prices. There are various factors that
associate with the supply and demand in determining the changes in the costs of petroleum
products.
Crude oil is a non-renewable natural resource and as such, it possesses the limitations in
terms of supply. The product does not occur in large deposits over the last 20 years and the
reserves have not undergone any drastic increase (Lingyu 39). The processes of producing the
crude oil to the relevant markets have undergone a slow increase in relation to the rate of growth
of oil use. The developments in the sectors of exploration, transportation, refining, and marketing
has improved at a sluggish pace to match the demand for the products.
Oil producing and exporting countries take part in a pivotal responsibility in the prices of
crude oil. The OPEC states possess over 75% of the World’s total oil reserves (Arouri et al. 611).

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The instability of the oil production of the OPEC would therefore, determine the changes in the
costs of the commodity. The Global oil supply policies and pattern determines the predominant
responsibilities that the OPEC has in the global markets. Quantitative analysis of the
determinants of oil price variations through the principles of co integration and error corrective
model reveal the effects of OPEC oil supply on the costs of the resource. The model suggests
that a 1% rise in the generation of the fossil fuel in the OPEC leads to an approximately 1.23%
decrease in the prices.
The demand of oil is additionally a causative factor in the variations of crude oil. OPEC
has in the recent years promoted economic diversification. Since the 1970’s when oil became
the common source of energy, most countries relied on the petroleum industry as the main
economic sector (Lingyu 39). The countries have promoted the development of non-oil
industries to reduce the dependence on the oil as a domestic gross product. Research reveals
that’s the non-energy industrial level increased from around 273 billion dollars to 608 billion
dollars within the gulf countries.
The diversification of the economy among the OPEC increased the consumption of the
petroleum products within the producing countries. The internal use of oil in OPEC has
developed into essential demand regions. Therefore, the increased economic sectors in the oil
exporting states have developed effects on the demand and supply, which in-turn influence the
changes in the prices of the natural resource.
The variations in the supply and demand of a product would directly alter the cost of the
goods. Economic theory states that an increase in the demand as a basic factor of prices would
imply the rise in the cost of the crude oil globally. Financial crises in the year 2008 led to the fall