Did you know that the United States of America, Saudi Arabia, Russia, Canada and China are among the world’s top five largest producers of oil, according to the United States Energy Information Administration (EIA)? Global fuel prices broke past $100 per barrel after the all-out war between Russia and Ukraine followed by sanctions from western countries restricting the purchase of oil from Russia. Crude oil is the most widely traded global commodity and its also among the most widely used. Here are the reasons why fuel prices have fluctuated drastically.
- Growing economies: Crude oil prices are set in deep and liquid global markets. crude price is determined by market forces of global supply and demand. Countries growing economies demand more oil and related products and this influences global prices. In every country in the world petroleum products are necessary for the transport sector, cooking, heating, electricity generation, solar panels, aspirin, clothing, chemical and fertilizers etc.
- Organization of the Petroleum Exporting Countries (OPEC) supply has not been able to respond to increased demand for oil and related products due to long investments cycles and cautious capital allocation.OPEC has been cautious not to oversupply the market .in 2016 OPEC allied with other top non-OPEC oil-exporting countries to form OPEC PLUS .as at 2016 OPEC PLUS had a market share of 50% of global oil supply and about 90% of proven oil reserves .in early 2020 OPEC members controlled 71% of total world proven crude oil reserves this presents a position of significant control . . as a cartel member country agrees on how much oil to produce this directly influences the supply of crude oil. OPEC always intends to keep the prices high in order to maximize profitability. A cut in supply results in high prices of petroleum prices
- Geopolitics most areas that have crude oil reserves are prone to political animosity in regions that have had oil production disruptions because of political tensions hence adding to oil market nervousness political events such as the Russian and Ukraine conflicts, Arab Oil Embargo in 1973-1974, Iranian revolution, the Persian Gulf war in 1990- 91 and the Iran- Iraq war in the 1980s. political instability in these regions impacts oil production hence resulting in a mismatch between demand and supply of oil thus resulting in a price increase.
- Taxation Maciej Kolaczkowski, manager of oil and gas industry from the World Economic Forums Energy, materials, infrastructure platform says that when it comes to oil as a source of energy, depending on where you are 50- 60% of the what consumers pay at the pump is tax. that means that even as we focus on prices of oil we should also be aware of the tax that comes with it. Maciej adds that importing countries like the Europe Union EU make more money from taxing oil that producing countries export to it thus taxation adds to the prices of oil products.
Check out this link for graphs explaining the causes of fluctuations in global oil prices https://www.eia.gov/finance/markets/crudeoil/reports_presentations/crude.pdf
Even as the oil crisis takes the world by a storm we ask ourselves is it the time now to introduce alternatives to oil such as electric vehicles or other renewable sources of energy to use in production?