# Crude oil price changing factors

I tried to summarize my thoughts about oil price changes, and try to understand the next weeks.

Will decrease price:

• OPEC output is higher every month, increasing supply.

• interest rates goes up, will reduce demand, less cars, less depending, less companies.

Will increase price:

• inflation, causing goods price to be increased

• fracking extracting is costly, which is sensitive to interest rates, higher rates will cause less fracking, less supply.

I'm trying to understand to increasing factors, that released the price from 50-60\$area into above 70\$ area.

Does anyone have ideas for why we are at high levels right now (and it looks like we will get higher)?

Thanks

Why have prices gone up?

Because supply was less than demand. The price has now increased, to bring supplies onto market, and to reduce demand.

Will it go higher? No one knows. The market thinks not, otherwise prices would already have gone higher.

• Beside supply and demand, don't oil (and other goods) having any correlation with the macro level economics? – gabi Sep 29 '18 at 7:18
• Also, is it possible that the demand increased by 250% since 2016? Because looking at the OPEC supply data, US alone increased the supply by 20% since 2016.. – gabi Sep 29 '18 at 7:24
• Macro effects manifest as changes to supply and demand. And no, demand has not increased by 250% in two years. Why would you think it might have? – 410 gone Sep 29 '18 at 7:42
• As i see the price increased by 250%, and the supply keeps increasing, and you said the price is changing by supply and demand. This is actually my first original question 😀, what is the factors for supporting the current 70\$ price, as the supply increased, and the demand is not interested by so much.. – gabi Sep 29 '18 at 8:18
• Why would price be proportional to demand, though? That would be most extraordinary. – 410 gone Sep 29 '18 at 10:11

A few fundamentals to state:

• equilibrium prices drives from both supply and demand.

• these curves are functions of quantity.

• The supply chain is an average of all MC functions of all firms.

As you wrote, oil supply arrives from different sources at different costs and technologies: Land drilling, fracking, sea drilling etc, with different mobilizing costs: land pipes, tankers, etc. Any technology shift changes the supply curve function **itself ** since the tech is a parameter

Energy markets are huge, state-dependant markets. You looked at the increase of supply, as you wrote in a comment, what about the increase in demand? China and India's energy consumption is rising together with their growth...

Geo-politics is also a factor in the market, think of the impact of Iraqi and Kurd oil, with it limitations on supply or Nigerian oil for that matter, Iranian sanctions on the other hand is also an issue, and that is without mentioning Russia and Qatar's gas, their middle eastern involvement etc...

You should also take into consideration that supply and demand and are not fully elastic (or fully inelastic) ... as I wrote, prices changes as equilibrium changes