This situation allows OPEC, which has spare production capacity, to control the total global oil supply and therefore oil pricing. OPEC has raised crude oil prices by a factor of about four since 2002, reducing world demand.
What causes oil prices to rise and fall?
As with any commodity, stock or bond, the laws of supply and demand cause oil prices to change. When supply exceeds demand, prices fall and the inverse is also true when demand outpaces supply. The excess supply of oil caused oil prices to fall sharply.
What determines the price of oil?
There are four key components that determine the price of gasoline. The cost of crude oil accounts for 65% of the price of gasoline. The cost of a barrel of crude oil is determined by global supply and demand. If the worldwide demand for crude oil is high, and supply low, oil prices will be high.