Of all industries in the world, oil industry is indeed an international business which affects most countries in the world. As the oil is the most consumed energy, it plays a vital role in daily lives as well as economy and social development. Also, the oil industry leads to new technology development both directly and indirectly. It has been deployed as a means for economy and political negotiation. Nevertheless, “crude oil” when refined into various petroleum products having different attributes i.e. gasoline, diesel, aviation fuel, kerosene, and fuel oil, and others, its value will be maximized. The price of crude oil is thus determined by the type and quality of the crude oil itself. Once distilled, heavy and light crude oil yield several refined products e.g. gasoline and diesel to serve demands at different quantities. In addition, sour and sweet crude are also priced differently.
Forecasting or estimating oil price in the future is sophisticated because oil is the commodity product which is available globally. Unlike other products, the quality of oil product can be made different to serve different needs of consumers. As the oil market is mainly regional activities which are born of cooperation from various countries and parties having different needs and environments, several factors then involve both directly and indirectly.
Nevertheless, the price can be analyzed at both regional and global levels.
Main factors that affect the price
The fundamental factor of oil price determination, is demand and supply like other type of products. Demand and supply of oil products change according to situation and circumstances. In any market situation, imbalance between demand and supply can affect prices. For instance, in the case of more demand than supply (undersupply), the price is likely to rise. The variables which result in imbalance between demand and supply include: