The price of oil can have outsize effects on companies, economies, and even global geopolitics. For example, an oil spike can stifle economic growth and cause inflation (often called a period of stagflation). And a sudden oil price drop can create cash flow problems for firms that use energy intensively or for governments with large fuel subsidies and/or major energy exports.

Oil prices are the result of thousands of transactions taking place simultaneously at all points along the oil and petroleum product supply chain. Oil markets are essentially a global auction that offers the best bidder the chance to buy the available supply. Recent research has found that shocks to the flow supply of crude oil have not had much impact on the real price of oil since 1973, but speculative demand shocks defined as shifts in the desired stocks of forward looking traders have played an important role in all major episodes of price volatility since then, including the Arab Oil Embargo and the Iranian Revolution of 1973/74, the Iran-Iraq war in the late 1970s and early 1980s, and the collapse of OPEC and the Gulf War in 1990.

Other factors that drive oil prices include geopolitical events and severe weather that affect the flow of crude oil to market or that create uncertainty about future supply or demand. In addition, the price of oil can fluctuate as people move away from fossil fuels and toward renewable energy sources or hybrid vehicles that are less dependent on imported oil.