Reasons for international oil price fluctuations
Since 1970, the world has experienced three relatively significant oil price increases. Except for the first two oil crises in 1973 and 1979 , the latest round of oil price increases started in 2002 and has continued to this day. Oil prices started at $21 per barrel in 2002 and rose all the way to over $100 in 2008, reaching a peak of $147 in the second quarter of 2008. After June 2009, it has been maintained at around $70. Since 2010, the economies of various countries in the world have gradually come out of the bottom, especially the economies of Asian countries have rebounded strongly. That year, the oil price showed a trend of stable before and then rising, at 70-80 US dollars. The current highest crude oil price is $106.93 and the lowest is $95.72. Throughout the historical record of oil prices, international oil prices have been rising all the way, showing a trend of sharp rises and violent fluctuations. Oil is an indispensable resource for social development and human survival, and occupies an important position in the national economy and people’s livelihood. Therefore, it is of great practical significance to deeply explore the reasons for international oil price fluctuations to promote world economic growth and economic stability.
There are many reasons for oil price fluctuations. This article mainly starts from three aspects: internal motivation, long-term influencing factors, and short-term fluctuation reasons.
1 Intrinsic motivation
(1) Scarcity. As an exhaustible resource product, oil is in short supply in absolute quantity, which is not enough to meet the needs of human beings for a long period of time, and has material scarcity. More consumption at present means less consumption in the future. The opportunity cost of consuming scarce resources at present and giving up future consumption is called user cost. Different from general commodities, the composition of oil prices includes not only marginal exploitation cost, marginal social cost, but also marginal user cost. The increase or decrease of the three kinds of costs causes the volatility of oil price.
(2) Financial attributes. The important impact of speculative transactions on oil prices underscores the financial nature of oil. At present, it is generally believed that the price of the international oil market has been manipulated by two major forces: one is the international large multinational oil companies that control most of the world’s oil exploration resources, and these multinational oil companies often use their strong capital strength through oil futures. The market artificially raises and lowers futures prices during the pricing period; the second is speculative funds, which have a significant impact on oil prices. Judging from the situation in recent years, international crude oil futures have increasingly become a financial speculative tool, and speculative funds have an increasing impact on the international oil market.
(3) Strategic attributes. As a strategic commodity, oil is closely intertwined with national strategies, global politics, international relations and national power. After countries have raised oil to a strategic height, they have taken various measures to compete for oil resources, control oil prices, and establish large-scale oil strategic reserves through political, economic, and military means. Come and confirm the huge strategic attributes contained in oil.
2 Long-term influence factors
(1) Supply factor. In oil supply, OPEC plays an important role. Its oil reserves account for 78% of the world’s total reserves, its production accounts for 40% of the world’s total production, and its exports account for 55% of the world’s total trading volume. It can be seen that OPEC’s oil supply It plays a pivotal role in regulating international oil prices. Since 2004, international oil prices have continued to rise, mainly due to insufficient oil supply. OPEC’s idle production capacity has declined. According to EAI statistics, the output in July 2005 has exceeded 34 million barrels per day. It will become increasingly difficult to continue to increase production on the basis of this huge output. OPEC countries rely on their unique monopoly position to produce according to the principle of maximizing profits. Larger output corresponds to smaller marginal revenue, and smaller output corresponds to larger marginal revenue. This feature makes the actual output of a single OPEC country often smaller than that of the organization. unified quota. In November 2007, OPEC made further adjustments to the production agreement. The agreement only stipulated the overall production target, but did not clearly stipulate the production quota. This change intensified the continued production reduction behavior of OPEC countries, and also caused a huge impact on the international crude oil supply. In 2007, oil demand grew strongly, and OPEC’s production cuts drove oil prices to rise rapidly; since September 2008, OPEC’s three production cuts were made when both oil demand and prices fell, which played a direct role in the recovery of oil prices.
At present, the world has entered a post-petroleum era. In the post-petroleum era, there are fewer and fewer oil resources that are easy to exploit and low cost, and more and more oil resources that are difficult to exploit and high in cost. The pressure on global oil resources has continued, and the crude oil reserve-production ratio has continued to decline. The crude oil reserve-production ratio refers to the proven crude oil reserves at the beginning of the year divided by the crude oil production of the year. One of the most fundamental long-term factors in price volatility. A falling reserve-production ratio means that the increase in crude oil production is faster than that of proven reserves. At this time, crude oil prices will rise, and producers will increase exploration efforts while reducing production. As the reserve-production ratio gradually increases, crude oil prices will fall. ;vice versa. Therefore, the reserve-production ratio determines the long-term trend of crude oil prices.
(2) Demand factors. Since 2004, the OECD, Asia-Pacific, European Union, North America and other regions have maintained rapid economic growth rates and strong growth in oil demand. It can be seen from the table below that the growth of oil demand in the Asia-Pacific region is the most prominent, showing an increasing trend year by year. The average annual growth rate from 2004 to 2009 was about 24.885 million tons, of which China’s oil demand increased by about 22.148 million tons, which is similar to this growth trend. There are also Central and South America, the Middle East and Africa; in 2005, the oil demand of OECD countries was as high as 2.28285 billion tons, the oil demand of North America was as high as 1.13939 billion tons, and the oil demand of the United States was as high as 951.37 million tons; the oil demand of EU countries basically showed an increasing trend. Although it has declined slightly, the absolute demand is still very large. In the context of less price elasticity of demand, strong demand growth drives oil prices sharply higher.
At present, the accelerated development of the global economy has increased the demand for oil, especially the rapid increase in oil consumption in developing countries represented by China, which has increased the dependence of economic growth on oil. The large increase in global oil demand has weakened demand elasticity, so when oil prices rose sharply, oil demand did not fall back significantly. Due to the limitation of technical level and investment precipitation, there is a lack of substitution between different energy products in the short term, which is one of the reasons why the price elasticity of oil demand is small.
(3) Inventory factor. Oil inventories generally consist of commercial inventories and the country’s strategic oil reserves. The main purpose of commercial inventory is to ensure that enterprises can operate efficiently in the case of seasonal fluctuations in oil demand, while preventing potential shortage of crude oil supply; the main purpose of national strategic reserves is to respond to oil crises. Oil inventories can reflect the oil supply and demand situation to a certain extent, and a decrease in inventories indicates that oil demand is strong and supply is tight, and vice versa. The adjustment of the commercial inventory level of oil companies is mainly based on the futures price. When the futures price is much higher than the spot price, the oil company will increase the commercial inventory of oil and hold the goods to rise, thereby stimulating the spot price to rise, and the futures and spot price difference will decrease. Small. When the futures price is much lower than the spot price, oil companies usually reduce commercial inventories, which reduces the spot price and reduces the futures-spot spread. The impact of oil inventories on oil prices is more complex. In the long run, inventories act as a buffer between supply and demand and have a positive effect on stabilizing oil prices. When oil prices are low, oil inventories are increased, driving oil prices up, and when oil prices are high, oil inventories are sold, causing oil prices to fall.
(4) The dollar exchange rate factor. Oil is denominated in US dollars, and the price of oil is closely related to the value of the US dollar (mainly reflected in the exchange rate). Affected by factors such as the continuous reduction of short-term interest rates by the US Federal Reserve, the raising of interest rates by resource-based countries, and the reduction of US dollar assets by international speculators, the US dollar continued to depreciate, resulting in a continuous decline in oil revenue. Oil prices, lower production. At the same time, the depreciation of the US dollar has brought great panic to the international financial industry. In order to avoid risks, speculators have exchanged US dollars for oil futures contracts, which further affects the balance of supply and demand in the oil market and exacerbates oil price fluctuations.
3 Reasons for short-term fluctuations
(1) Speculative factors. International oil companies control the international monopoly capital of most of the world’s oil resources, and price manipulation is intensifying. At the same time, international speculative capital is also making waves, and they have turned from traditional fields to oil futures. In the context of a relatively fragile supply and demand balance in the international oil market, speculators make full use of good and bad news, buy and sell, and profit from it, aggravating the market. fluctuation.
In recent years, the commodity market represented by crude oil and gold has won the favor of many institutional investors, and a large number of international hedge funds have intervened in the international oil market. Global hedge funds are an important hype force in the oil market. The sharp fluctuations of international oil prices in recent years are not only the inevitable product of profound changes in the investment background, but also the result of international hedge funds’ hype.
At present, the spot oil price circulating in the international oil market is not directly determined by the supply and demand parties. When the supply and demand parties sign a supply contract, they usually only determine a certain pricing formula. The benchmark price in the pricing formula is generally directly related to the price in the oil futures market. connected. Therefore, the futures price largely affects the spot price. This special formation mechanism of oil prices will inevitably be affected by speculative factors in the futures market.
(2) Emergencies and political factors. In the short term, unexpected events will play a role in fueling oil prices. The world’s major oil-producing countries are located in the Gulf region, and the unstable political situation in the Middle East often has a great impact on world oil prices in the short term.
At present, as the world’s oil supplier, the great changes that the Middle East is going through affects the nerves of all countries in the world. Some analysts pointed out that the political turmoil in the Middle East countries will last for a long time, and even if the demonstrations recede, its influence will be difficult to eliminate in the next one or two years. Affected by this, world crude oil prices are likely to continue to rise. Armed intervention in Libya by Western countries (France, the United Kingdom, the United States, etc.) will cause the price of crude oil to hit a new record high, that is, breaking through US$147.94/barrel, or even US$150/barrel.
4 Conclusions and recommendations
From the above analysis, it can be seen that the characteristics of scarcity, financial attributes, and strategic attributes are the internal reasons for the fluctuation of international oil prices; the fragile supply and demand balance, fluctuations in oil inventories, and the exchange rate of the US dollar are the long-term influencing factors of international oil price fluctuations; Speculative factors in oil, anticipation factors for oil prices, emergencies and political intervention are the direct causes of short-term fluctuations in international oil prices. The combined effect of these three factors has led to sharp rises and sharp fluctuations in international oil prices in recent years.
my country is the second largest oil consumer in the world. The rise in oil prices will increase the pressure on foreign exchange balance, which will bring heavy pressure to the domestic oil industry chain, and will also increase the pressure of inflation and make prices rise. In order to deal with the adverse impact of the sharp fluctuations in oil prices on my country’s economy, the following measures can be taken:
(1) Strengthen the exploration and development of domestic oil resources to ensure the basic supply of oil. The so-called basic oil supply refers to ensuring the country’s basic needs for oil in terms of economy, military and national life based on its own oil supply. At present, many old oil fields in eastern my country have experienced a rapid decline in oil production. If there is no follow-up oil resources to take over, it is very difficult to maintain the current annual oil production. my country should strengthen oil exploration and development in the west and sea areas, increase oil reserves and expand oil production capacity.
(2) Actively invest in foreign oil exploration and development business to ensure overseas oil imports. At present, Russia, countries in the Caspian Sea region, and countries in the Middle East are competing to develop their own oil industry, which requires capital, technology, and more markets. Therefore, this is a good time for Chinese oil companies to take big steps to go global. Chinese oil companies should focus their overseas investment on Saudi Arabia, Iran, Kazakhstan and Russia’s Siberia, raise funds to acquire their oil and gas assets, organize technical forces to directly engage in oil and gas exploration, exploitation, transportation and sales, and strive to ensure my country’s growing oil supply need.
(3) Establish and improve the oil reserve system to avoid oil supply risks. In order to deal with price risks in the international oil market, a complete oil reserve system should be established to improve the level of oil reserves. Using oil reserves, one can buy oil at a low price and sell oil at a high price; second, when a war occurs or international oil prices skyrocket, the use of oil reserves can stabilize domestic or international oil prices and maintain the smooth operation of the national economy. Developed countries attach great importance to national oil reserves. The oil reserves of the United States, Japan and Germany have reached 158 days, 169 days and 127 days respectively. China has become the world’s second largest oil consumer, and its dependence on oil imports has exceeded 40%. Reserve days are only 35 days. Therefore, my country should establish a complete oil strategic reserve system and commercial inventory system as soon as possible.
(4) Carry out international oil futures trading to avoid the risk of international oil prices. Chinese oil companies should actively participate in international oil derivatives transactions in the international oil market, conduct “risk purchases”, “sell high and buy low”, engage in futures “hedging”, etc., on the one hand, to gain more from market price fluctuations. International revenue, on the other hand, ensures a balanced supply of domestic oil demand. At present, my country should cooperate with Japan, South Korea, India and other countries to establish an international oil futures market in Asia, gain the right to speak in the price determination of the international oil market, and give full play to the price signal function of the oil futures market, the balance function of near- and long-term transactions, and fairness. The transaction function ensures the stable development of the region and the national economy.
(5) Vigorously save energy, develop new energy , and reduce dependence on oil. Considering the risk of rising oil prices, the development of natural gas , electricity , solar energy , geothermal energy, hydrogen, nuclear energy , coal gas and renewable energy should be accelerated, and these energy sources should be able to replace oil in more fields through technological innovation. At the same time, focus on energy conservation, improve energy consumption, and improve energy efficiency.
(6) Strengthen the reform of the oil price system and establish a market mechanism to adapt to the fluctuation of international oil prices. At present, the pricing report of China’s refined oil products is mainly submitted by the three major oil companies and determined by the National Development and Reform Commission. This method is compatible with China’s current oil market mechanism, especially in response to this international oil price increase process. , played a very important role. However, in the long run, we should strengthen the reform of my country’s oil price system, establish a market mechanism that adapts to fluctuations in international oil prices, and truly enable the three major oil companies to enter the international oil market and improve their international competitiveness; Use efficiency; make the domestic crude oil and refined oil market system more standardized, and enhance the ability to deal with price fluctuations in the international oil market.
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