Suhail Hadouth
As one of the most sought-after and valuable resources on the world, oil is incredibly popular amongst investors, and is often invested in through the likes of CFD trading and buying shares in oil companies.
As such, it is important for any investor to think about putting their money into oil to consider how the price of oil is affected, so that they can manage their investment effectively. Given oil’s global popularity, there are constant forces at work influencing its market behaviour, so here are some of the main factors to consider.
Supply/Demand
First and foremost, the main culprit influencing oil’s price globally is supply and demand. When supply outweighs demand, oil’s price drops, and vice versa, so looking at the amount of oil being produced by different countries, and measuring this against the global need for oil, can give a good indication of where it is headed price-wise.
In recent years, there was a global oil glut which caused prices to crash and stagnate for an extended period of time. It even led oil producing countries like Saudi Arabia to reduce their economic reliance on oil exports by investing in other areas of the economy.
Politics/Geopolitics
One of the factors which has been influencing oil prices increasingly in the last few decades has been politics and international relations between different countries. The US’s recent reintroduction of sanctions on Iran (an oil producing country), for instance, has caused oil to undergo a resurgence in value as global oil supply will likely be significantly reduced by the US’s actions.
In general, any time there is conflict in an oil producing country, oil prices will shoot up as investors price in a drop in global supply. As such, following political events and monitoring international relations is crucial for anyone investing in oil.
OPEC
Whilst the Organisation of the Petroleum Exporting Countries (OPEC) does not exist to influence the price of oil directly, they can put measures in place which affect the price dramatically. During the global glut, for instance, they put a cap on how much most member countries could produce within a given timeframe.
This did not cause an immediate spike in oil’s value, but it almost certainly contributed to the end of the glut, and prices are recovering strongly. As such, it is also important for investors to monitor OPEC’s actions on a regular basis.
These are the main factors which influence the value of oil globally. It is important to remember that, in the investment world, nothing is ever guaranteed, and given that politics can be so unpredictable, there is plenty of scope for volatility in the oil market, so invest wisely.
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