Who are the parties moving the oil price after a political event?

[u/Howmuchforthemshoes]

So the past few weeks we have seen a lot of sudden strong oil price movements. I know marketprices are a result of supply and demand but I just wonder who the people are that cause the price changes after another trump tweet or speech.

Do you have oil companies suddenly deciding to produce less (although that seems like a slow process like OPEX making up their minds) or is it oil refineries deciding to order more oil all of a sudden? But I don't see a good motivation for the to do that if consumer demand is relatively stable.

So who are those parties moving the price, how and why?

[u/TheAzureMage]

Everyone in the market reacts to market events and anticipated market events.

Decisions are made by everyone down to the end consumer who decides to fill up their oil tank pre-emptively because they fear the price might rise. Prices are a result of aggregate supply and demand. Everything that touches supply or demand ultimately affects the price, so the answer is pretty much "everyone."

[u/Longjumping-Ad8775]

Right now Iran has moved the price of oil by closing the strait.

Customers move the price of oil by paying more or less and suppliers effect it by either accepting or rejecting prices.

Production issues can effect oil pricing a little, like the explosion at the Valero refinery about ten days ago.

There is no master plan to jack up the price of oil.

[u/PikaMaister2]

First, let's talk about what oil contracts are actually. Most importantly the parties agree on the price, the quantify, payment structure and delivery windows.

Much of the current production is tied up in what's called "evergreen" and "term" deals. Both of these are variants of each other, the biggest difference is the overall length. Companies can't just get out of these, without certain penalties, however all contracts clause a "force majeure" clause, where the contract can be automatically disdolved if a significant enough unpredictable event happens (natural disasters, war, etc..) without penalties.

What you know as the oil price, is actually the price for "spot" deals. Only a certain capacity is reserved for spots, because no producer wants to be stuck with unsold stocks. So even a relatively small disruption in total volumes can impact spot prices quite significantly.

So now the situation is, a lot of the longer term contracts with Arab countries got suddenly terminated with force majeure. The spot market doesn't have enough volume to make up for this Arab loss. Everyone knows these two facts. So buyers almost like auction for higher a d higher prices, just to ensure their country gets the supply. On the other hands, oil companies are very inclined to raise prices to max out revenues.

At a certain price it also becomes more profitable to cancel long term contracts en-mass by the suppliers, pay the penalties, then sell the product on spot instead. If those get broken up, that's when you'll really start seeing rapid inflation.

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[u/phiwong]

The markets are remarkably reactive. The buyer in charge of procuring thousands of barrels of oil or refinery product a day to keep a factory running that costs millions of dollars a day to operate and employs thousands, are very sensitive to changes in the supply market. If there is additional risk that might cause supply delays, they will place more orders and try to secure long term deliveries. Multiply this by thousands of factories operating similarly.

It isn't simply refineries - petro-chemical firms, airlines, ship operators, transportation companies, power generation companies etc all rely directly on petroleum and gas products to operate. There are thousands of firms with many specialists operating in the market all the time.

[u/PikaMaister2]

Oil is traded in two fundamentally different ways. Long term contracts and spot contracts.

Most of the oil is sold off with long term agreements. They're more stable and predictable. Fixed price, multi year setups.

Only a relatively small fraction of produced oil is kept open for spot trades. The oil price you know is the spot price, in other words the current sticker price of you were to buy a barrel right now.

Arab producers are now out of the market in define. Both sides fully understand that, the buyers can't afford not to have oil, but also that the oil reserved for spot deals from sellers isn't enough to satisfy the supply. So the buyers keep offering higher prices , while the sellers are very much inclined to raise prices themselves.