Oil is one of the world's most popular commodities. Oil is converted into gasoline which powers our vehicles and airplanes; oil is also a primary component in the manufacture of plastics. The price of oil is strictly controlled by those nations which produce it in order to maximize their potential profit. There are other issues that affect the price of oil as well, including investors, world conflicts, and issues of supply and demand.
As demand increases, oil-producing nations reduce the supply in order to add value to the limited oil available in the marketplace. As a result, during times when consumers are likely to buy more gas, such as in the summer months, there will usually be sudden increases in the price per gallon. When consumers stop driving, flying or engaging in other activities that require oil, prices will stabilize or lower as the supply is no longer considered as valuable.
Oil speculators invest in oil or future contracts when the price of the commodity is low and sell it high in order to gain a profit. Many feel that speculators are responsible for raising or lowering oil prices as they have a vested interest in controlling supply and demand. This means that they will keep the commodity from entering the marketplace in order to increase demand and therefore increase the price. Also speculator activities and the oil market are not directly regulated and monitored as the stock exchange is, so it is hard to grasp how much of an impact and influence speculators have on the price of oil.
Conflicts in the oil-producing nations and/or areas of the world can cause the oil prices to rise from lack of access of oil refineries, transport options being disabled, and oil being withheld in interest creating conflict and causing economic disharmony in other parts of the world. For example, Israel's threats to strike the nation of Iran with missiles caused a gallon of oil to rise in June of 2008. The price per barrel went from about $138 at the beginning of June to $150 in July. In 2002, unrest in Venezuela caused oil prices around the world to rise. Conflicts can affect the supply of oil by decreasing the methods of transferring the commodity to consumers which will cause a higher price as the supply or predicted supply decreases.
Natural disasters, such as hurricanes or tornadoes, can greatly impact the price of oil. Oil refineries, drilling equipment and transportation systems can become damaged and curtail operations when natural disasters strike oil-producing areas of the world. Hurricane Katrina damaged some refineries in the Gulf Coast which had an impact on supply and an effect on gas prices. Oil giant Valero Energy Corp. stated that Hurricane Rita, which threatened to damage refineries in the Texas Gulf Coast, would have possibly raised gas prices from $2.77 per gallon to over $3.
