What caused the fluctuation of oil prices?

Answer 1

Supply:

A stock or amount of something supplied or available for use

Supply

Bad weather affects oil supply. Hurricane Katrina in 2005 caused severe damage to U.S. refineries along the coast and production capacity in the Gulf of Mexico. Oil prices briefly spiked to above $70 per barrel before dropping. Gasoline prices in cities across the United States soared by as much as 40 cents a gallon during the havoc and its aftermath. President Bush decided to release 30 million gallons from the country's Strategic Petroleum Reserve (SPR) and brought the price of oil back down. These days, it has become part of the "conventional wisdom" of oil analyst that hurricanes in the Gulf are associated with higher gas prices. War and political unrest also affects oil supply. For instance, Libya holds 4% of world reserves and when civil war broke out global supply decreased. Previously producing about 1.7 million barrels a day (bpd), Libyan oil production was cut to near zero after civil war broke out in February, 2011. The cut represented only about 2% of global oil production but caused oil prices to spike. Several developed nations released oil from their strategic stockpiles in summer 2011 to ease the oil supply shortage. Additionally, exporting countries such as Saudi Arabia increased supply to dampen the Libyan civil war's effect on the market. Improved technologies including offshore technology, enhanced oil recovery (EOR), and unconventional oils (oil sand, shale oil) also allow oil companies to increase supply. EOR could potentially double the amount of oil we can get out of the earth-taking it from the current one-third extraction level and up to two-thirds of the original oil in each reservoir. Hence, improved technologies add incremental proven oil reserves in the future and likely cushion the decline in oil production after world output peaks.

Demand : An economic principle that describes a consumer's desire and willingness to pay a price for a specific good or service. Holding all other factors constant, the price of a good or service increases as its demand increases and vice versa.

Demand

The industrialized countries are the largest consumers of oil. The economies of the member countries of the Organization for Economic Cooperation and Development (OECD), account for almost 2/3 of worldwide daily oil consumption. Regionally the largest consuming area remains North America which is dominated by the United States, followed by Asia, Europe, and then the other regions.

Economic growth is the most important factor in oil demand shifts. Asia is the region with the fastest demand growth and contributed roughly 56% of the growth in global oil demand over the past decade.

Projected share of global incremental oil demand

China and India together accounted for just 8.2% of global oil demand in 2000, but they contributed to half the global demand growth over the subsequent ten years (2001-2010). The combined demand of the two countries jumped by 92% over the last decade, and their share of global demand rose to 13.7% in 2010. China is world's fastest-growing automobile market. In 2008 the country produced an astonishing 14,000 new cars per day!

Indian Tata Nano with price tag of $2000 will affect oil demand

India is making news in the global automobile market recently when Indian automaker Tata Motors announced plans to begin mass production of the Tata Nano with a price tag of roughly US $2000. This means that many of India's almost 1.2 billion populations will soon be able to purchase their first cars. We can only expect that the already-increasing oil demand will increase even more as the Tata Nano and similar vehicles begin filing the streets of this emerging nation.

High oil price and the ever-increasing awareness about renewable energy have also created a new market of biofuel which substitute for petroleum products. Biofuel production has been increasing but still accounts for less than 4 per cent of the global fuel supply. Blending non-petroleum product (such as ethanol or palm oil) into petroleum products can also reduce crude oil demand.

Economic recession can decrease demand for oil which causes the price of oil to drop. As recession lingers on, oil consumers cut back on their expenses and driving is oftentimes one of the first expenses that will be decreased. When they have to drive, many are using more fuel-efficient vehicles. This reduction in driving and a mean of driving as a way to save money decreases oil demand and thus reduces oil prices.

Conclusion

In conclusion, oil price is affected by the interaction of two different forces: supply and demand. The demand for oil is decreasing because the biofuel production has increased and there are more renewable sources of energy. Also the amount of hybrid vehicles has increase over the last few years. As a result of this the price of oil will decrease as there are less people using it. However the price of oil might increase because there is a limited amount and in countries like India they are making cars that run on fuel. Another reason is that although there is an increase in the amount of hybrid vehicles, a lot of people still use cars the run on fuel.

Answer 2

The process of "Facking" (extracting "shale oil") not only produced cheaper American oil, but made the middle-east lower their priced to try to force these shale-oil companies out of business, so they would again be our only major source. As prices return to normal, it seems that they may have succeeded.