Infographic: The Facts Behind Oil Prices
By CME Group - Wed Dec 12 12:00:00 CST 2012 CT
Related Keywords: Energy, Market Fundamentals

As oil and gasoline prices have increased in recent months, consumers, politicians and economists have expressed differing opinions about what’s driving prices at the pump close to historic highs. Some have even cast the blame at the feet of speculators in the energy markets. However, by taking a look at global supply and demand fundamentals, we can see more clearly the sources of recent price spikes. For example, global demand in newly industrialized countries has grown substantially in recent years. And according to the International Energy Agency, total global demand for energy is expected to rise by about 35% over the next 25 years if current usage trends continue. The bulk of this growth is expected to come from developing economies. Additionally, geopolitical tensions in Iran, Africa and the Middle East can trigger fears of potential supply disruptions, impacting the prices of crude oil and gasoline.

Effective markets are part of the solution to managing the energy price volatility that is often the result of many of these factors. Producers, processors, refiners and distributors of gasoline and other hedgers use our futures markets to lay off their oil and gasoline price risk. That’s why speculators play such an important role in these markets. They take on that price risk in exchange for the opportunity to make a profit. In doing so, speculators are providing much-needed liquidity to hedgers and helping to mute the swings in price volatility that might otherwise be more severe without them.

 

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