A complex power struggle between buyers and sellers determines the oil market.

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A complex power struggle between buyers and sellers determines the oil market.

Largest buyers of oil can pressure suppliers into lowering prices if they do not have alternative clients, which was especially true in the early years of oil trade.

Producers of oil, however, have an even better way to exercise power over prices - simply slowing or accelerating production will push up or depress global prices.

Oil-producing countries leverage this power to project their influence globally.

Since 1960, we have OPEC (Organisation of the Petroleum Exporting Countries).

OPEC acts as a partnership of oil suppliers aiming to coordinate how much they produce to keep the oil price where they need it (in economic terms, they are a cartel).

OPEC is led by Saudi Arabia and currently has 12 member-states, but a number of other major producers (known as OPEC+) have often supported OPEC strategy to varying extent.

In recent years, OPEC has launched a number of “price wars”, attempting to drop global oil prices by overproducing.

Saudi Arabia and OPEC were attempting to stop the growth of US oil and gas industry, which needed higher prices to be profitable.

In 2022, OPEC accounted for 36.2% of global oil production.

Why are oil prices so important?

Almost a third of all the energy used by humans comes from oil.

The majority of cars, planes and ships run only on fuels made from oil (or petroleum) - like gasoline, kerosene or diesel.

When electricity is used for energy instead of fuel it likely comes from a power plant burning gas, which is often extracted together with crude oil.

As a result, any economy relies on there being enough oil available to grow or at least maintain itself.

Apart from energy sources, oil is used to make plastics, as well as fertilisers, cleaning products and medicines.

This means that oil is a component of almost any product or service, through the cost of either transportation or materials, or, most likely, both.

There are very little substitutes for crude oil, as alternative plastics or biomass petroleum remain fringe technologies.

Changes in oil price, therefore, strongly affect all prices in the economy.

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