Oil price fluctuation is the rapid rise or fall of prices for crude oil. The fluctuations are largely driven by supply and demand. When demand for crude oil is high and inventories low, prices are pushed up. Conversely, when demand for oil is lower than normal and inventories are high, prices are pushed down.
The cost of production also plays a role in oil prices. New technology such as hydraulic fracturing (fracking) has increased the amount of oil that can be produced by drilling in rock formations. Increasing production capacity has caused the price of crude oil to drop.
Geopolitical events and supply disruptions can cause oil prices to fluctuate as well. These types of events can have real effects on the world’s oil supply and are often linked to political instability in regions that produce a large portion of the global crude oil.
Interest rates and oil prices are not tightly correlated. However, increasing interest rates raises the costs of manufacturing and transportation, which reduces the demand for oil, causing prices to drop.
Seasonal demands can also drive oil prices up or down. For example, winter typically sees prices increase because people use more home heating oil. In summer, gasoline prices spike as people take to the roads for vacations.
Overall, oil price fluctuations have significant effects on the economy. A sharp price spike can stall economic growth and can make it difficult for cash-strapped companies to continue investment in their businesses. Similarly, a price crash can wreak havoc on financial markets and can change the direction of global politics seemingly overnight.