Oil price fluctuation is a reality that affects everyone around the world. The prices of crude oil and petroleum products are determined in a global auction by the highest bidder. When oil supply outpaces demand, prices fall; if supply is less than demand, prices rise.
The reasons for such dramatic fluctuations are many and varied. Some of them are obvious – political instability in oil-producing countries, economic policy uncertainty, natural disasters and technological innovations have all contributed to shifts in oil prices. But other factors are less well known.
Home heating oil costs go up in the winter; gasoline prices tend to rise when a major storm hits; and OPEC decisions about production quotas can all have sudden effects on what you pay at the pump. These price changes are often accompanied by public outcry.
How can we make sense of such price volatility? To help understand this phenomenon, CFR hosted a workshop on “Oil Price Fluctuation: Causes and Consequences.” The workshop brought together current and former government officials, economists, oil-market analysts and political scientists to examine the primary causes of the price fluctuations. This article, which is based on the discussion at the workshop, aims to bring clarity to the issue and to highlight possible solutions.
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