Amidst Russia Invades Ukraine, Crude Oil Prices Breaks $100 for the First Time in 7 Years

Crude oil prices have crossed the mark of USD 100 a barrel for the first time since 2014 after Russian president Vladimir Putin announced his plan of military operations against Ukraine and following that there were reports of explosions right after the announcement by the Russian President. The prices retreated after the United States (US) President Joe Biden announced that he isn’t planning to impose energy-related sanctions on Russia for now.

The conflict between both nations is going to leave a lasting effect on the energy market considering the fact that Russia stands at the 2nd rank in terms of producing natural gas and is one of the major oil-producing nations. Since the beginning of this year, crude oil prices have jumped more than $20 a barrel. Reportedly, India currently fulfills 80% of its oil requirement through imports. 

There’s already an existing imbalance of demand and supply of crude oil due to the ongoing Covid-19 pandemic subsidization and Saudi Arabia’s conflict with Yemen. This is not the first time when the crude prices see the heat of conflict between two countries, the prices are affected due to geopolitical issues, OPECs, and several other facts, also because of crude oil’s availability at limited places. 

What is OPEC?

Organization of Petroleum Exporting Countries (OPEC) is a cartel having 13 major oil-producing nations onboard that includes the major Middle Eastern countries, Venezuela, and Nigeria. As per an estimation, OPEC holds control of over 78% of globally known crude oil reserves. The OPECs manipulate the major portion of the prices of crude oil by deciding upon how much oil are they going to contribute to the global market.

How Do International Crude Oil Prices Affect Consumers?

Whether it goes unnoticed, however, oil and natural gases as energy sources play an important role in each economy and hold far more important value beyond just being used for private and commercial vehicles.

From primary to secondary and tertiary, each sector requires crude oil for various purposes, that include transportation of raw materials in the primary sector, production in the secondary using machines in factories, and transporting the final products to the market for the end consumers to avail them.

So, this way when crude oil becomes one of the prominent parts of supply chains in the form of energy that is used at almost every step, some way or the other, and as the product a consumer buys, includes indirect taxes, and the cost has to bear more burden of the increased price along with the provider and the producers.

How Crude Oil Prices are Determined?

With no doubt, crude oil prices are affected by different factors, but the main factor that helps in determining the crude oil prices is the basic principle rule of any market which is ‘Supply and Demand’, yet, continues to be influenced by the future speculations as well.

The oil prices can be even defined by binding agreements between the producer and the consumer in the barrel at a predefined price and a predefined future date. The contract mandates both parties to complete their transactions as per the agreement on the defined date.