The price of oil has risen to $104.33 a barrel, with Brent crude trading 35 cents higher at 8am Eastern Time than the previous morning. The benchmark is around $37 above its level a year ago.
Brent crude stood at $103.98 a barrel yesterday and has gained 12.41% over the past month. Compared with the same point last year, it is up 54.15%, from $67.68.
What is driving the oil price?
Oil prices are shaped primarily by supply and demand, although the market can move sharply when concerns grow about recession, war or other major disruptions.
News about future supply and demand can also influence trading, including decisions by OPEC+ and government policies affecting drilling. In the United States, expectations over access to new oil reserves can alter views about future production.
The price changes continuously while futures markets are open. These markets allow people and companies to agree to buy or sell oil at a future date, with prices moving as contracts are traded.
US shale production is another factor. Shale rock contains oil and natural gas, and increased access to those resources can add to supply and help limit the extent of price rises.
How higher oil prices affect consumers
Crude oil accounts for a large share of the cost of fuel, so movements in the oil price generally feed through to petrol prices. However, the final price also reflects refining, transport, taxes and the margin added by individual filling stations.
Prices at the pump often rise quickly when crude becomes more expensive but can take longer to fall when oil retreats, a pattern sometimes known as “rockets and feathers”.
Higher oil prices can also add to the cost of everyday goods. Transporting products from farms and warehouses to shops becomes more expensive, while energy costs such as heating and gas utilities may also rise.
Oil and natural gas are closely linked parts of the energy system. If oil becomes more expensive, some industries may switch to natural gas where possible, increasing demand for it.
Strategic Petroleum Reserve
The United States maintains the Strategic Petroleum Reserve as a supply of crude oil for emergencies including sanctions, severe storm damage and war.
Releasing oil from the reserve can help soften severe price rises during a supply shock, although it is intended as temporary relief rather than a long-term solution. It can support critical industries, emergency services and public transport while wider supply problems are addressed.
Brent crude’s history
Brent is the main global oil benchmark and is considered a better measure of worldwide performance than West Texas Intermediate, the principal benchmark for North America. It is also used as the primary reference in the US Energy Information Administration’s Annual Energy Outlook.
Oil prices have experienced major swings over the decades. The first significant shock came in the early 1970s, when Middle Eastern countries reduced exports and imposed an embargo on the United States and other countries during the Yom Kippur War.
Prices fell in the mid-1980s amid weaker demand and increased production from non-OPEC countries. They climbed again in 2008 as global demand increased, before collapsing alongside the global financial crisis.
During the Covid-19 lockdowns in 2020, demand fell on an unprecedented scale and oil prices dropped below $20 a barrel.
The history of Brent crude shows how significantly the market can be affected by armed conflict, recessions, production decisions by OPEC and changes in energy policy.
