The global oil market is a massive marketplace involving thousands of transactions occurring simultaneously at all points along the oil and petroleum product supply chain. The resulting price fluctuations are the result of many influences, including individual consumer and business demand; human manipulations of the market through control of production and supply; and “force majeure” impacts to the market that are unforeseen and beyond a single person’s control (such as natural disasters like Hurricane Katrina or wars such as the conflict between Russia and Ukraine).
When the flow of oil is disrupted by any of these factors, the ensuing prices increase dramatically and often remain high until the oil and petroleum products supply chain can resume operation at normal levels. The back and forth between the forces that drive oil prices can cause severe economic disruptions, especially for importing countries and those that rely on oil exports as their main source of public revenue.
Because industrialized countries rely heavily on oil-based energy sources for their economic growth, the price of oil is one of the most important drivers of aggregate prices in their economies. However, a high oil price can have negative effects when it increases the cost of other energy sources and the prices of non-energy goods and services. Increasing oil prices can also reduce consumer and business spending, reducing overall economic activity in the global economy, with a disproportionate effect on the poorest households. A recent workshop hosted by the Maurice R. Greenberg Center brought together experts from government, academics, and private sector organizations to discuss what drives oil price volatility, its effects on the economy and geopolitics, and policy options for addressing it. This article summarizes some of the key takeaways from that workshop.
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