Oil price fluctuation can have a large impact on economics, especially in crude oil-importing countries. A sudden rise in oil prices can cause companies to increase their production costs, or even shut down. Therefore, it is important to understand what influences oil prices.
In general, oil prices can be influenced by everything from supply and demand to natural disasters. Oil-producing countries like OPEC (Organization of the Petroleum Exporting Countries) have the ability to keep prices low or high by controlling how much they produce. However, if they raise prices too much, it may encourage consumers to seek out alternative fuel sources, which can hurt them in the long run.
Additionally, many countries have reserves of oil to keep the prices down in case of a crisis. For example, the United States has the Strategic Petroleum Reserve, and other oil-producing nations have oil-related investments that they can draw from in times of crisis.
Lastly, investors often take risks when investing in the stock market. This can lead to large volatility in stock prices, which can also influence the price of other assets, such as oil.
Many studies have found that there are asymmetric impacts of oil price fluctuations on the economy. Thorbecke [17] found that industries relying on oil for transport are harmed by higher prices, while other industries benefit from lower oil prices. Similarly, Charfeddine [12] and Nusair [13] found that non-crude oil real GDP responds more to negative oil shocks than positive ones.