The Oil Industry and the Factors that influence Oil Prices – Chapter 3: The Sentiment of the Market

This is chapter number 3 out of 10. Read the rest:

Read The Oil Industry and the Factors that influence Oil Prices – Chapter 1: History of the Oil Industry
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 2: Oil Prices Determinants

The sentiment of the market also plays an important role in determining petroleum prices. Because of its critical importance in the global economy, the oil market is extremely sensitive to sentiments reflecting its availability. Any news of terrorist attacks on oil pipelines, hikes in oil tankers rates, OPEC’s (the group of oil trading countries who have formed an alliance organization) reports can adversely affect the price of oil almost immediately as speculators and hedgers will take up oil Futures contracts to profit or hedge themselves from the anticipated increase in price. 

Based on these observations, it is predicted the oil prices will face a downtrend from 2008 to 2010. The subsequent cycle is forecasted to happen in the period of 2037 to 2039. You should note that the laws of demand & supply as well as market sentiment are more crucial than cycles in explaining the price fluctuation of oil. Cycles are only stressed here as they can affect the sentiment of the market. They represent guides and not hard and fast rules regarding the fluctuation of oil prices.

As opposed to other products, the prices of petroleum are not exclusively determined by its demand, supply as well as market sentiment. Its price is also affected to a large extent by the demand, supply and sentiment towards the oil Futures contracts. With the bulk of the trade in Futures contract done by speculators, this group of market participants play a big role in determining petroleum prices. In addition, past observations has also indicted that the cyclical trends of commodity prices also affect petroleum prices. Irrespective of how oil prices are determined, we can never ignore the fact that petroleum plays an important role in our lives. With no viable substitute in sight yet, the demand for oil is predicted to rise in the future to come. 

Read The Oil Industry and the Factors that influence Oil Prices – Chapter 4: The Origin of Oil and its Composition
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 5: The Drilling & Production of Oil
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 6: Comprehending Price Fluctuations
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 7: The Supply of Crude Oil and Its Prices
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 8: The Components of Gasoline’s Retail Price
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 9: When Supply and Demand isn’t the answer
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 10: Conclusion