Cannon Trading Blog

There are a few different aspects that factor into how crude oil prices affect what consumers pay at the pump. Oil is directly affected by geopolitical events, weather patterns, distribution costs, supply, demand and State and Federal taxes, to name a few. As the aforementioned forces are unpredictable and as they become more volatile, so becomes crude oil. Understanding each factor and the role it plays with respects to the rise and fall in prices, may help someone understand how to utilize the information to make better trading decisions.

Supply

First and foremost supply is affected by various socioeconomic and political factors within and around the region of origin. Also, OPEC, an organization commenced in 12 of the top oil producing companies and producing just fewer than 50% of the world’s oil supply, regulate their portion of crude oil produced. Often OPEC will be in positions to sell or barter away the oil they produce in exchange for currency or other assets that will benefit their interests. The United States itself houses around 700 million barrels in its Strategic Petroleum Reserves for use in the event of political dissensions with oil producing nations, as well as for emergencies such as natural disaster affected regions of the country.

Demand

The driving forces behind the demand for crude oil can be a number of factors. The most obvious, of course, is the rate and amount of oil each country uses. According to the CIA World Fact book, the United States tops of the market at 21%, the EU uses 15% of the world’s oil and China consumes 11%. As countries develop, particularly within their middle class infrastructure, this creates more consumers and more consumers using vehicles, driving the demand higher. On the back end of developments like this, oil refineries must adjust production to suit the growing need, which also incurs a higher cost in that production.

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