Oil is the crown jewel of commodities. It's used in many ways, from making plastics and asphalt to processing fuel. Price changes in oil ripple through the entire economy, since it is essential to the production, distribution, and delivery of most of the physical products we use.

As a result, the oil industry is an economic powerhouse, and change✤s in oil prices a✃re closely watched by governments, corporations, investors, and consumers.

Many variables affect oil prices, but the key driver is the basic principle of supply and demand. The big question is: What affects the supply aꦰnd demand of🍰 oil?

Supply and Demand

Oil consumption consists of hundreds of millions of people and businesses collectively influencing supply and de🐭🌟mand for oil-based products and, therefore, their prices.

Levels of oil production also a๊ffect oil prices, particularly in countries that produce large amou𓂃nts of crude oil.

The United States is the largest oil producer in the world, outpacing the country that most assume to be the largest producer: Saudi Arabia. The U.S. surpassed Saudi Arabia as the world's largest oil producer in 2018. The main driver was the surge in shale fracking in Texas and North Dakota.

That may change. Saudi Arabia and its OPEC partners have announced they will step up oil production in 2025 after several years of relatively low output.

The U.S. produced more than 22% of the world's oil supply as of 2023, compared with 11% each for Saudi Arabia and Russia.

Capacity and Reserves

The nations that produce the most oil and the countries that are most commonly identified with an abundance of oil aren't necessarily the same. There is an important distinction between oil production and 澳洲幸运5开奖号码历史查询:oil reserves.

Types of Reserves

Typically, oil reserves are categorized as proven reserves (90%+ chance that oil can be extracted), probable reserves (50%+ case that oil can be extracted), and possible reserves (at least a 10% probability that the quantities recovered will equal or exceed the sum of estimates proved plus possible reserves).

Determining the type of oil reserves countries have can help determine🐷 where future oil supplies will come from and the ability of future supply to meet demand.

Countries with Reserves

Venezuela has been identified as the leader on the list of largest oil reserves by country, with reserves estimated at more than 303 billion barrels. However, most of that oil is offshore or deep underground, making it difficult and expensive to reach. It is also dense oil, which makes it harder to refine into usable products such as gasoline.

Saudi Arabia has the second-l🍎argest reserves, with 26𒁃7 billion barrels.

As for the United States, its 澳洲幸运5开奖号码历史查询:proven reserves are less impressive than its current capacity. The U.S. had 55 billion b💟arrels in reserve by 2024.

Pumping, Refining, and Distribution

Basic supply and demand theory states that when more of a product is produced, it sh𝄹ould sell for less.

It's a symbiotic dance. More was produced because it became more economically efficient (or no less economically efficient) to do so. For example, if an oil well stimulation technique was invented that could double an oil field's output for only a small 澳洲幸运5开奖号码历史查询:incremental cost, with demand staying static, prices sho♌uld fall.

Oil Extraction

Technological developments have impacted production and the costs of extracting oil 💎from the ground.

Oil production in North America has surged, with fields in North Dakota and Alberta as fruitful as ever.

Also, new supply has been added due to advancements in shale fracking. Fracking refers to hydraulic fracturing, in which fractures i🐲n rock formations are created by injecting fluid into the cracks to force them to open. Petroleum or natural gas can then be extracted from subterranean wells.

Refining and Distribution

Des🧜pite the increase in oil production, crude oil prices have remained volatile. That has a ripple effect on the prices of most products, given the reliance on oil for production, shipping, and delivery of physical products.

The problem with the basic supply and demand theory is that distribution and refinement haven't always kept up with production.

For example, the United States does not build refineries often. The newest refinery with significant capacity came online in Garyville, Louisiana, in 1977.

OPEC and Oil Prices

Then there’s the power of the cartels. The Organization of the Petroleum Exporting Countries (OPEC) was founded in the 1960s. Although the organization’s charter doesn’t state this explicitly, they fix prices.

By restricting production, OPEC can force oil prices to rise and thereby enjoy greater profit𝔉s than if its member countries had each sold on the world market at the going rate.

Geopolitical Tensions and Oil Prices

The oil industry is a global game and what happens in the world impacts the price of oil, especially since a many of the world's biggest oil producers are in politically unstable areas.

Regions Susceptible to Tensions

Geopolitical tensions are associated with many o👍il-producing countries, particularly in the Middle East. Saudi Arabia, Iraq, Iran, Kuwait, and Libya all fall into this region.

Other countries have added to the uncertainty of oil supply, impacting prices. For example, Russia has been a nefarious player in global politics, suffering 澳洲幸运5开奖号码历史查询:sanctions from the U.S. and tꦚhe Europeanꦿ Union, among others, as a result.

Russia and Ukraine Tensions

Russia's aggressive moves on Ukraine offer a recent timeline of the impact of geopolitics on oil prices.

Tensions that began in late 2021 and escalated in early 2022 led to a 35% surge in the price of 澳洲幸运5开奖号码历史查询:West Texas Intermediate (WTI), the "sweet crude" oil that is a global benchmark.

In mid-December 2021, Russian officials demanded that Ukraine be precluded from joining the North Atlantic Treaty Organization (NATO) and that NATO forces be withdrawn from Eastern Europe. The U.S. and NATO refused, and these tensions again roiled energy markets.

In early 2022, Russia began military operations in Ukraine, which centered around the separatist regions in the east and other targets within the country. WTI oil prices spiked from $74.32 on Dec. 15, 2021, to $100, while 澳洲幸运5开奖号码历史查询:Brent crude shot up to more than $105 during intraday trading in early 2022.

The Bottom Line

The law of supply and demand drives oil prices. But oil prices drive the economy, influencing the cost of do🥀ing business and the prices of most💎 consumer goods.