As the world goes through a vast amount of political change, there are a number of crucial elements that are affected. With general elections affecting businesses and international policies, this can also affect the cost of oil. In this article, we will be looking into some of the ways that ongoing political uncertainty can affect oil prices on a daily basis.
US And Iran
One of the biggest political impacts in recent months that have affected oil prices is the killing of Qasem Soleimani. This caused intensifying fears of conflict in the world crude oil production leading to prices soaring by more than 4%. Though there were no plans to prevent oil production in any way, the killing of one of the most powerful military generals was enough to spark panic. The price of oil was at $69.50 per barrel shortly after the attack and has since begun to level. Though the conflict between the two world powers seems to be lessening, the ongoing conflict is far from over. This, therefore, means that prices could continue to fluctuate throughout the rest of 2020.
Energy Policies In The US
In addition to the ongoing conflict with Iran, it is the energy policies of the US that have also caused the oil price to fluctuate. With the withdrawal of the Paris agreement as well as a number of rollbacks on environmental policies, the price of oil remained stable, however, the amount of oil that the US uses did increase. This was an issue for many around the world as climate change experts have suggested that the amount of CO2 produced could be as much as 3% higher than before they were in the agreement. This is an issue for some as the amount of oil being used can drive up the cost based on supply and demand.
The OPEC
The role of the Organization of the Petroleum Exporting Countries and its role in the price of oil is simple. They play an information role in managing the production of oil by its members by setting production targets. In the past, the price of oil has increased when the OPEC production targets have reduced, this is due to 40% of the world’s oil production comes from OPEC members. This, therefore, means that they hold a vast majority of the market share. This, therefore, means that OPEC can utilize their production capacity as an indicator on the tightness of the global market.
Due to Saudi Arabia being the biggest oil producer within OPEC, changes in crude oil production there can frequently affect oil prices. Therefore, any conflict in this area will affect the price of oil as it will drive the prices up.
Supply And Demand
The final way that oil prices can be affected is through supply and demand. The lower the cost of oil is the more people to purchase it, therefore leading to an increase in supply and demand. Alternatively, the cost being higher will lead to demand being lower. Therefore, it is in the best interest of many to keep the price as regulated as possible to keep people buying. Therefore, political uncertainty can cause disruption to this as it can lead to bulk buying or not buying fuel anymore. If this is the case, this can lead to the price increases and costs being too high for many.
With this in mind, there are a number of ways that political uncertainty can affect the price of oil and can lead to the price fluctuating drastically. Therefore, it is important to monitor ongoing political uncertainty, particularly in the middle east and the US as this is likely to see prices increase further.
