Why price of Petrol-Diesel-Natural Gas fluctuates so much?

The problem with crude is that it fluctuates too often , sometimes with a minimum amount of rationale. Let us go through the reasons why the price of crude dances and makes even the mightiest of the nations dance within its tune?

Crude oil is fondly called the liquid gold. However this gold does not bring smile and sparkle, rather makes nations cry too often.

The problem with crude is that it fluctuates too often , sometimes with a minimum amount of rationale. Countries like Saudi Arabia, and now Russia tug at the production of crude at random, creating volatility as per their convenience. Do you know crude is one of the most speculated commodities?

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Let us go through the reasons why the price of crude dances and makes even the mightiest of the nations dance within its tune?

Let's take Russia. Russia has one of the largest reserves of crude in the world. It's National Oil companies, Gazprom and Rosneft are  leaders in natural gas and crude exploration,  production, transportation. However, multinationals like Shell, Total cannot independently produce oil or go for explorations here,  but have to form joint ventures with these Russian giants. The Russian oil companies are tightly controlled by people close to Kremlin-like Igor Sechin. Sudden changes in regulations and excessive taxing of the oil companies is the reason why the  multinationals have been wary of capital and infrastructure spending in oil and gas sectors of Russia. The net result is a max output of about 11 mbd of crude oil which is reduced or increased at the whim of Kremlin. This creates an willful instability of crude price in the international market by Russia.

This nation controls the huge natural gas market too, and not always at friendly terms. A few erstwhile Soviet Union countries had been supplying natural gas to European countries, but with the introduction of the Nord Stream pipeline, that business has been taken over by Russia. The problem for European countries is that it's impossible for them to live without LNG and Natural gas, and fossil fuel like coal is impossible to be used again.

But, Russia is the strongest contender of military might and it will have no qualms in throttling the gas supply to European countries, whether that be EU giants like Germany or less mighty ones like Bulgaria, in case the western world tries to sanction it for its misadventures.

This fact alone makes the natural gas market turbulent and dance to any perceived slight disturbance in the geopolitical environment.

Other middle east nations like Qatar, Iraq are also large producers and exporters of natural gas, but they are also participant and sufferers of geopolitical disturbances in middle East, Africa.They support groups that damage gas transportation pipelines and storage facilities. These disturbances add volatility in the price of Natural Gas.

That’s why natural gas market price is always at a boil.

Saudi Arabia is one of the most prolific exporters of crude. But it uses it position to unabashedly steamroll tension in Yemen, elbow out Iraq, regulate OPEC, and most importantly control crude price internationally. It uses OPEC meetings to force other less affluent members throttle or open taps of crude oil production regulating it’s price artificially.

To understand how Saudi Arabia controls and lets crude price drift higher or lower, let’s check out what it recently did.

It had taken a decision to let price of crude depreciate and not to decrease crude production. This brought crude down to 30 dollars per barrel and made countries like Venezuela, Nigeria, broke. When Saudi Arabia itself started suffering the pangs of ultra low crude price with its economy becoming capital account deficit and welfare, infrastructure schemes getting scrapped, it quickly changed tracks. Till now it had resisted production cuts. But such is the power of this middle east nation that within weeks it subjugated its fellow OPEC members to agree to production cuts.

It colluded with Non Opec members and traditional business opponents (in cude oil export) i.e. Russia, to hammer out a production cut formulae that effective cut off more than 2 mbd from the oil market. The price of oil took off and within a span of five months, flew to 80 dollars from 35 dollars.
This is the power of Russia, Saudi Arabia in regulating crude prices.

Iran, another giant in crude oil export,  frequently messes up the market.  It finances, trains militant outfits in Yemen, West Africa, Palestine and Jihadi groups like Al Queda.

It's no brainer that's its as anathema to a country like USA.

This results in frequent sanctions from USA and EU, which have crippled Iran’s most important aspects i.e. capital investment into new oil fields and servicing of existing ones.  It has also been barred from using the American channels of payment. This particular step effectively cuts it from transacting freely with any nation,  as all the International payments are done in American dollars. Before this sanction took place, in the 2010s Iran was producing about 3.5 mbd. After sanction was lifted in Obama era,  it was exporting about 2.5 mbd. But in the sanction by Trump, much steeper laws are in place, which will bring down the export of Iranian crude to about 700,000 barrels from 4th November. This continuous process of sanctioning and releasing Iran, creates heavy fluctuations in world wide crude price.

Libya is another African country which has giant oil and gas field like Sharara. But the coalition government created by National Accord does not have the power or resources to regulate the extremist outfits. These terror groups damage the pipelines or set the crude storage tankers on fire, as a sort of wager in return of supporting their activities. Or for ransom payment. This causes the Libyan output to frequently fluctuate and cause ripples in the market.

Nigeria is the largest sweet oil producer in Africa. One of its famous product (from Shell) is Bonny Light. However as in other African nations, damage of pipelines, setting inventory terminals to fire by rogue groups are common. These not only create outages but major fluctuations in price.
American shale oil would have been sufficient to satisfy a large part of crude consumption. However, crude transport pipeline shortage in West Texas, and in the storage depots in Oklahoma and Cushing are preventing frackers and drillers from producing more, as it is costly for them to transport it via rail and tankers rather than pipeline. However, this issue so start getting solved from 2019 Q2 onwards.

The above mentioned factors constitute the important ones that dramatically increase our decrease price of crude in a short span of time.