When it comes to commodities, nothing is more prominent in the global commodities market than crude oil. As a result, when the oil prices change, it has a significant impact on the global economy.
Crude oil is predominantly dependent on economic events and geopolitical events. So any changes in these two factors can lead to variations in oil supply levels. This, in turn, will lead to oil price fluctuations.
For example, take geopolitical and economic events in the oil-producing region that impacted the supply of crude oil:
These events had a significant impact on the price of oil and the global economy. Further, the current state of oversupply from OPEC is a major event that continues to impact the price of this valuable commodity.
The oil business is made up of two prominent groups that own a majority stake in global oil production. They are known as the Organization of Petroleum Exporting Countries or OPEC and the other is known as non-OPEC group of countries.
So investors who are speculating on the movement of oil prices will have to pay close attention to these two entities.
OPEC often makes changes to its production capacities and this will have a significant impact on oil supply. It will also naturally contribute to volatility in prices.
OPEC as a group is primarily lead by it’s largest member, Saudi Arabia. This is the nation that is behind rock bottom oil prices that we have experienced over the past 12 years.
Non-OPEC oil producers, including those producing shale oil, usually don’t have much capacity to export because of high domestic demand. These nations include the following:
Interestingly, these nations are also net oil importers even with the high levels of domestic production. However, with the new discovery of shale oil and gas, the non-OPEC group has enjoyed a larger market share in recent years (although shale oil requires a significant initial investment).
But even with increased output, the non-OPEC group of nations haven’t had an impact on price. Further, even when their record high production levels between 2002 -2004 and in 2010, there were no price declines.The recent decline in prices between 2014-2015 can be directly attributed to oversupply from OPEC and not increased production by non-OPEC nations.