A lot of factors, many far too advanced for the amateur to understand, but we are going to take a look at some the basic factors.
First, as a matter of disclosure, I made a fair amount of money playing the movements of oil although I'm no longer invested in oil.
The Stock Exchange offers a new kind of investment product known as an ETF or Exchange Traded Fund. These ETFs are offered in a selection of different forms. I acquired an ETF that went up in price when oil went up. Then, I acquired a similar ETF that went up in price when the cost of oil went down. ( Called an inverse or short fund ) if you're looking to profit when the oil barrel price goes up ( or down ) this is one way.
I'm going to give you the "tip of the iceberg" clarification of the way the oil barrel price is determined but as we said earlier, it's much too advanced for the layperson to realise and overtly, not excessively crucial to the newbie. The cost of oil is controlled by futures contracts. A futures contract is a promise to supply a certain amount of oil or pay ( settle ) the contract in a specified month. Most futures contracts result in no delivery of oil. Instead, it is an investment product engineered to make financiers cash.
When the mixed resources of commercial investors come together, the price of oil can be moved in strategies that don't coincide with supply and demand. For instance, when the Florida orange crop is spoiled by unseasonably cold temperatures, the price of orange concentrate ( which is also traded as a futures contract ) goes up as the supply is lower and the demand is the same.
Oil doesn't often follow this standard logic and many have asked why. Most now agree ( and a Fed. study proved ) that the cost of oil has been artificially moved by stockholders instead of fundamental demand and supply in the past. There is a new push to prevent this but faces major headwinds.
No matter what the mavens believe about the way the market wants more oversight, "the market" always has a method of correcting synthetic price levels. We have seen the cost of oil come back down to levels that are possibly just as synthetic as when they were high. During the summer of 2008 the oil barrel price was at its high and then just a couple of months later, it was at its low,
The experts have held on to the assumption that the proper price based mostly on demand and supply, transit costs, and research and development costs, is about $110 per barrel. So what occurs if we average the highest and lowest cost of oil? We come up with a cost of $95.
What does oil barrel price have to do with us? Gasoline is sold in futures contracts of its own but it approximately is contemporary with oil prices.
How are you able to make cash in oil? Unless you have truly massive tanks or actually large resources, you cannot earn cash on oil directly but read about ETFs and how to trade oil as a stock.