Crude oil has been showing a dramatic pricing movements this year... It is not the first time crude oil's stability has been hurt, a lot many times it keeps on changing... Crude oil is a dollar denominated commodity, for sure the prices of dollar make an impact on its prices...
There was a time when prices reached 140$ a barrel, so the price of one barrel is around 60$
The balance of demand and supply is tight with daily demand of roughly 86 million barrels per day, almost the same level as daily supply.
Some of the major issues are:
The balance of demand and supply is tight with daily demand of roughly 86 million barrels per day, almost the same level as daily supply.
Some of the major issues are:
1. Dollar weakness and funds
- A combination of weaker performance in other asset classes and expectations of continued strength across the commodities complex has drawn in investors and speculative funds, providing further support for the market.
- An added incentive for them has been the weakness of the dollar against other major currencies, which makes dollar-denominated commodities relatively cheap.
- This made a rise in prices of crude oil...
2. OPEC STORY
- The Organization of the Petroleum Exporting Countries (OPEC) has been at the forefront of those citing speculation and a weak dollar as the reason for higher prices, saying it is pumping enough oil to keep the market balanced.
- Saudi Arabia, the biggest OPEC producer, is expected to raise output close to 9.5 million barrels per day (bpd) in June up from around 9.1 million bpd in May.
3. Oil Output reduction resulted in sky high prices
- Iraq's output has been disrupted by years of sanctions and then war. Sanctions have also limited exploration in Iran and violence has interrupted flows in Nigeria.
- The biggest OPEC producers already prohibit foreign operators from accessing their oil reserves.
- Non-OPEC Russia, the world's second biggest oil exporter, has also been limiting foreign involvement in its upstream while its output has stagnated.
4. Rise in Demand
- High prices have begun to erode demand, but continued growth in China and other emerging economies is expected to offset the impact of any fall in developed countries.
- While high taxes reduce demand in some developed economies, subsidies spur consumption in emerging economies.
- In the developed world, some governments are considering reducing taxes, while emerging economies, struggling with the growing burden of subsidies, have started to lift them.
How are oil prices calculated..??
Commodity traders are responsible for oil prices by bidding on oil futures contracts.
There are many factors they look at when developing the bids that create oil prices:
- Current supply in terms of output, especially the production quota set by OPEC
- Oil reserves, including what is available in refineries and what is stored at the reserves
- Oil demand, particularly from the U.S.
Higher crude oil prices directly affect the cost of gasoline, home heating oil, manufacturing and electric power generation. How much? According to the EIA , 96% of transportation relies on oil, 43% of industrial product, 21% of residential and commercial, and (only) 3% of electric power.
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