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Volatility in Crude Oil Prices & Its Influence on the Crude Oil Market

The crude oil is essentially a mixture of hydrocarbon substances that are drilled from certain underground geologic locations, and they are obtained in the liquid form. The mixture is known to be a non-renewable source of energy obtained alongside natural gas and saline water. Oil exploration across the world has gone on overtime, and it was revealed that the countries from the Gulf regions had natural reserves of proven oil in the largest quantity in the world. The early 1960s had shed light on the priority to reduce the competition between nations to regulate the crude oil prices. So, the leaders of Iran, Kuwait, Iraq, Venezuela, and Saudi Arabia had collaboratively formed the OPEC or Organization of Petroleum Exporting Countries, which later included the nations of Libya, United Arab Emirates, Algeria, Qatar, Indonesia, Nigeria, Ecuador, and Gabon. OPEC helps devise procedures for maintaining the stability of the Crude Oil prices in the international oil markets with an aim to either minimize or eradicate unnecessary and harmful fluctuations in the prices.
The price oscillations of crude oil are known to influence the energy exporters with massive amounts of revenue losses when the consumers and importing countries pay low prices for their oil & energy. In a similar fashion, when the consumers pay a higher amount of revenue for the crude oil, the energy exporter gain higher revenue while the importing countries are required to pay more for their energy reserves. Thus, price fluctuation in the oil prices can restrain the market development for crude oil as well as impact the decisive actions, production rate & investments of the petrochemical companies.
Furthermore, the gulf countries heavily export crude oil and other petroleum products, which makes an adverse effect on their economy’s growth. Considering Saudi Arabia, which is the world’s largest exporter of crude oil and other related petroleum liquids, the overall exports made by the country account for its majority of total revenue. So, any reduction in the crude oil prices can cause budgetary pressure on Saudi’s economy and further rupture their financial condition.
The companies established in the Gulf regions attempt challenging each other by providing the crude oil products at competitive prices or provide similar quality features at highly competitive prices for the products in the crude oil market. The oil prices in the Middle East & Africa Crude oil market are mainly influenced by the policies that are framed up by the OPEC. Other factors that sway the company strategies can range from certain weather or seasonal events, supply interruptions such as spills or worker strikes to political instability in oil-producing nations.
For instance, the Tehran (Iran) based National Iranian Oil Company (NIOC), which had been in operation since the early 1950s, has redirected their focus towards forming strategic alliances to raise the stability in the volatile crude oil market. The company directs exploration, drilling, R&D, production, refining, export and distribution of gas, oil, and petroleum products. They are taking other steps as well to aggregate their capacity for production by drilling new oil wells. The complexities in economic and political relations among its consumer countries are impacting its expansion.
Same goes for the Saudi Arabian company called Saudi Aramco, which is a state-owned oil company besides being a fully integrated, global petroleum and chemicals enterprise. Its massive global presence is facing issues with revenue generation and cost due to currency risk, changing laws, and fluctuations in product standards of other countries. The issue of changes in the statutory regulations or government policies in developing countries where a company operates can form a hindrance to handle the problem of crude oil price volatility. Kuwait Petroleum Corporation specializes in the production, petroleum exploration, petrochemicals, refining, commercialization, and transportation. But, it is facing enormous amounts of risk that are associated with increased adaptive costs for crude oil.
High availability of crude oil or downturn in the global economy may result in a drop in oil prices. The price rise happens in cases of a wide supply-demand gap for crude oil. But various forms of technological advancements in high-volume hydraulic fracturing and onshore horizontal drilling have propelled the growth of the crude oil market. Also, the increasing demand for petroleum-based products from the transportation sector is profiting the market for global crude oil substantially.

Inkwood Research

Author: Inkwood Research

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