What role do economics play in fluctuating oil prices over time?
At first glance, this question might seem really basic, foolish even. I mean, most people know about supply and demand and how it affects prices. Supply increases without a matching increase in demand and the price should drop, right? If demand increases but there's not a corresponding increase in supply, then prices will go up?...
The problem here is that global demand has steadily increased over the past 100 years, but it has been almost perfectly matched by supply. Take a look at this chart that tracks global supply and demand since 1965.
Now, let's look at oil prices...
Crude Oil Prices - 70 Year Historical Chart
Before I pose a possible conclusion, let us consider 2 things:
- World oil demand has been increasing steadily, with no wild gyrations.
- World supply has done the same, of course it would since large producers can see the demand numbers very easily, and there are 'swing' producers such as Saudi Arabia.
The only possible conclusions to draw are that oil prices have nothing to do with supply and demand and that the price swings are created by traders?
Am I wrong?
