Rich or poor, rising fuel prices are doing terrible damage to global economies around the world. It was 2008 when fuel prices skyrocketed, ending at a record high of $150 a barrel. We are still seeing the gradual increase in fuel prices around the world. Basically, the supply and demand for crude or unrefined oil is the main cause of high fuel costs. Supply and demand is the basic criteria for all energy prices.
world oil supply
According to the US Department of Energy, there are three separate energy estimates of the world’s known oil reserves. The average of these reserves is estimated at 1,255 million barrels. Saudi Arabia, as the dominant producer, has 256 billion barrels of reserves. 755 billion barrels belong to the Middle East.
The Organization of the Petroleum Exporting Countries (OPEC) is the association of 12 countries, led by Saudi Arabia. OPEC represents 2/3 (66.66%) of world oil reserves. OPEC, as the market leader, feels free to set its own price for crude oil. Therefore, there is no considerable competition to drive prices down.
World Oil Demand
Fuel demand and fuel prices are directly proportional to each other. In other words, every time the demand for oil derivatives increases, the prices of fuels for the consumer increase. Daily global oil demand is estimated to be around 85-90 million barrels.
Economic and geographical effects on politics (Geopolitics)
There are so many factors that interrupt the supply of the fuel, result in the increase in demand and therefore prices skyrocket. Military operations or other disputes between different countries are the great obstacle in the continuous supply of the fuel. For example, Israeli military activities in the Middle East, acts of rebellion in Nigeria, etc.
The impact of natural disasters on fuel prices cannot be denied. As we can take as an example, the 2005 Hurricane Katrina in the United States resulted in a 40 cent increase in fuel prices overnight. Several Gulf Coast offshore oil docks and refineries were severely damaged and closed as a result of Hurricane Katrina for several months.
as a financial asset
Energy markets have become a fast trading platform in recent years. Therefore, the larger the bank, the larger its commodity trading desk. Most investors today have moved to the market to trade future deals on oil prices. Even the banks have developed.
Furthermore, in most countries the fuel price is quoted in US dollar terms, meaning exporters demand higher prices to repay the devalued currency, when the dollar is weak against other global currencies.
These are some of the few causes that directly or indirectly affect fuel prices around the world. Rising or falling fuel prices influence the entire world economy. Because most industrial projects depend heavily on the availability of the fuel.