Oil prices stood at $101.61 a barrel on the Brent benchmark at 9.35am Eastern time, down $2.72 from the previous business day but up $34.68 over the past year.
The latest price represented a fall of 2.61% from $104.33 on the previous trading day. Brent was also 6.78% higher than a month earlier, when it stood at $95.16, and 51.82% above its level a year ago.
Brent is widely used as the global reference for crude oil, while West Texas Intermediate is the main benchmark for North America. Brent is considered a broader measure of international oil performance because it covers much of the world’s traded crude.
What determines the price of oil?
Oil prices are driven primarily by supply and demand, including expectations about future production and consumption. Geopolitical developments, economic downturns, wars and decisions by Opec+ can all cause prices to move sharply.
In the United States, government policy towards drilling can also influence expectations for future supply. The price changes continuously while futures markets are open, as traders agree contracts to buy or sell oil at a later date.
It is therefore impossible to say with certainty whether oil prices will rise from their current level. The market has historically responded to wars, supply cuts, recessions, changes in energy policy and periods of oversupply.
How oil prices affect drivers and the wider economy
Crude oil is only one part of the price paid at the pump. Refiners, wholesalers, taxes and petrol station mark-ups also contribute, although the crude itself typically accounts for more than half of the final cost.
When oil prices rise, pump prices generally follow. Falls in crude can take longer to reach motorists, a pattern sometimes described as “rockets and feathers”.
Higher oil prices can also add to the cost of everyday goods by increasing energy and transport expenses. Shipping costs, for example, can affect the price of products as they move from farms and warehouses to shops.
Oil and natural gas prices can be linked because both are major energy sources. If oil becomes more expensive, some industries may switch to natural gas for parts of their operations, potentially increasing demand for it.
Strategic Petroleum Reserve
The United States holds crude oil in its Strategic Petroleum Reserve for energy emergencies, including sanctions, severe storm damage and war. The reserve can help ease sharp price increases caused by supply disruptions.
It is intended as an immediate response rather than a long-term solution, helping consumers and keeping critical industries, emergency services and public transport operating during a shock.
US shale production can also influence prices. Shale contains oil and natural gas that can be extracted, and increased access to those resources can add to supply and reduce the pressure for prices to spike.
Oil’s volatile history
Brent prices have fluctuated considerably over the decades. The first major oil shock came in the early 1970s, when Middle Eastern countries cut exports and imposed an embargo on the US and other countries during the Yom Kippur War.
Prices fell in the mid-1980s amid weaker demand and the arrival of more non-Opec producers. They rose sharply again in 2008 as global demand increased, before plunging during the global financial crisis.
Demand collapsed during the 2020 Covid lockdowns, sending oil prices below $20 a barrel. The long-term record illustrates how heavily the market can be shaped by supply, demand and wider economic and geopolitical events.
