Theories of oil price determination

Oil prices are determined by a combination of factors: supply and demand, geopolitical events, and market expectations. When demand for oil increases or supply decreases—due to political instability, natural disasters, or production cuts—prices tend to rise. Conversely, oversupply or weakened demand can lower prices. Additionally, speculators and futures traders influence prices through their expectations about future market conditions. Overall, oil prices are the result of complex interactions among these elements, reflecting how the global economy, politics, and market sentiment shape the cost of this vital commodity.