What Influences the Price of Oil?

Beginner • Course 5

Oil is a popular asset which individuals looking for volatility and long trading hours specifically trade. Though individuals considering trading Crude or Brent Oil should be cautious that the asset is unique in many ways. The asset is not only influenced by the changes in demand but also by alterations in supply. Whereas other assets, such as currencies, rarely see changes in supply. Therefore traders concentrate on demand, but with crude oil, supply is just as important as demand.

Traders should also note that the top 5 exporters and importers of oil are largely influencing the price of oil. Whereas other countries, which make up a smaller percentage of the global demand or production, are likely to have little or no effect.

Largest importers of oil

United States
China
India
Japan
Germany

Largest exporters of oil

Saudi Arabia (OPEC)
Russia (OPEC+)
Canada
Iraq (OPEC)
UAE (OPEC)

Brent and Crude Oil

Yes, there are two types of Oil which have different prices. However, traders should note that the price of each is strongly correlated. Correlated means the price will increase together and decline together. Brent Oil is mainly drilled in Europe, while Crude Oil production is mainly based in North America.

Oil Price Influences

Oil's price largely depends on how much supply there is compared to the current need for fuel. Traders should note that fuel needs are likely to increase during economic growth and decline during a recession or economic contraction.

However, traders should also note that political tension or conflict, including one of the top 5 producing countries or importing countries, can cause immense volatility. For example, oil prices significantly increased during the Ukraine-Russia conflict because Russia is a huge oil exporter. Conflicts and political tensions put supply at risk. For this reason, the price can increase.

Derivatives are complex instruments and come with a high risk of losing money due to leverage. You should consider whether you understand how derivatives work and whether you can afford to take the risk of losing your money

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