What Factors Drive Crude Oil Prices?


Crude oil prices have been a subject of discussion for centuries. Hence, the purpose of this article is to analyze the main factors affecting change in oil price movements.

29 January, 2020 | HYCM – Crude oil seems to play a vital role in the world, from powering homes and businesses to keeping the transportation infrastructure running. Our lives would be different without the black gold. If you’re considering investing in oil in 2020, it is vital to understand the factors influencing oil prices before investing.

Let’s now discuss the common factors impacting crude oil prices.

Related: How to trade Crude oil USD/CAD correlation

3 factors that affect crude oil prices

Recently, crude oil price has been under pressure by the coronavirus fears. The concern has been that a global pandemic will restrict the demand for oil. Less construction, air flights canceled, tourism reduced and cities on lockdown would all dampen the need for crude oil. This has, on top of an already well-supplied oil market, caused crude oil prices to drop as the chart below shows.

However, it is important to know three factors that could support oil in the medium term:

  1. There is a desire for by the OPEC-Russia partnership to agree to longer production cuts. These may even extend to 2020. Saudi Arabia always has the potential to talk up the price of oil by hinting at potential further cuts.
  2. The People’s Bank of China is offering support when trading begins again on February 03 for local assets. So, this boost from the PBOC could well translate into a risk-on mood for US oil.
  3. The geopolitical difficulties in Libya could halt production (causing oil prices to climb), Venezuela is thinking on a plan to privatize some oil assets. Iraq is volatile with a rocket attack this last week on Baghdad’s Green Zone.

US oil prices at daily support

With US Oil at a key daily support level there is a technical place for oil longs should any of these factors above start to support crude oil prices. If coronavirus fears recede, we can expect crude oil prices to be bought on a return to risk on growth.

Read: Why Crude Oil Prices Fall: 2 Factors To Consider

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