Why Oil Prices Have Been Rising Recently (2024)

FAQs

Why Oil Prices Have Been Rising Recently? ›

Oil prices are sensitive to shifts in the delicate balance between supply and demand in the global market. Much of the third quarter's increase has been attributed to a combination of record-high global demand and coordinated supply cuts.

The increase this year, prompted by geopolitical worries and supply constraints, has sent gasoline prices higher and could hamper efforts to tame inflation. Oil prices have climbed in recent weeks, spurred by concerns over supplies and geopolitical risks, including wars in Ukraine and the Middle East.

OPEC Production Cuts

Perhaps the single biggest driver of rising oil prices has been supply cuts by Russia and the Organization of Petroleum Exporting Countries (OPEC).

An important contributor to the price increase was the slowdown in oil supply growth, which has been a general trend since oil production surpassed new discoveries in 1980. The likelihood that global oil production will decline at some point, leading to lower supply, is a long-term fundamental cause of rising prices.

High prices for oil fuel the same sort of process as in any other sector; suppliers look for ways to provide more of the product and take advantage of those higher prices. For energy, then, that means opportunities for companies involved in exploration (seismic survey, for instance), drilling, production and servicing.

Oil prices have bounced back after the last OPEC+ announcement sent them crashing, and the U.S. Federal Reserve could send them higher still with optimistic messaging.

Like most commodities, the fundamental driver of oil's price is supply and demand in the market. The cost of extracting and producing oil is also an important factor. Oil markets are composed of speculators who are betting on price moves, and hedgers who are limiting risk in the production or consumption of oil.

Crude oil prices react to many variables, including supply and demand prospects and the perceived risk of market disruptions. Economic growth can drive up the demand for crude oil, while slowdowns tend to lower demand and prices.

For example, higher oil prices drive up production and transportation costs throughout the economy, which are then passed through to food and core prices. Higher energy prices can also raise consumer and business expectations for future inflation, indirectly raising food and core prices now.

Who profits the most from oil? ›

The top five US-based oil and gas companies by market cap, according to S&P Global — ExxonMobil (XOM), Chevron (CVX), ConocoPhillips (CPP), EOG Resources (EOG) and Schlumberger (SLB) — have raked in more than $250 billion in profits between 2021 and 2023.

This comes on the heels of a report showing that refiners like PBF Energy are making more profits off of Californians than in any other state – $0.78 per gallon compared to the national average of $0.50, a 56% differential.

OPEC+ regulates the supply of oil to influence the price of the commodity on the world market. The group can achieve this by coordinating supply cuts when the price is deemed too low and supply increases when its members believe prices are too high.

"Part of the reason why prices have been so high is that California has really restricted the ability for refineries to expand and grow," said De Haan. "California has been rather hostile to refinery expansions or oil industry investments, trying to push them away and transition California to more electric vehicles."

Gas prices tend to rise during the warmer months of the year because of higher demand and a switch to summer-blend gasoline. The direction of crude oil prices and other factors also can contribute to higher prices at the pump.

Oil prices hit annual highs in April as Israel and Iran teetered on the brink of war, stoking fears that a wider conflict could engulf the Middle East and disrupt crude supplies.

Petroleum prices are determined by market forces of supply and demand, not individual companies, and the price of crude oil is the primary determinant of the price we pay at the pump.