Effects of Fundamentals, Geopolitical Risk and Expectations Factors on Crude Oil Prices

Abstract

Though there are diverse factors that influence crude oil prices, we examine the degree of influence of factors, such as demand, supply, geopolitical and economic agents’ expectations. The main objectives of this study are the following: firstly, to determine the necessary factors that influence crude oil prices and secondly, the level of factors required to produce the specific level of outcome. Actually, the existing literature addresses the net impact of variables on crude oil price and in reality, no single combination can influence crude oil prices; thus, we set our final objective to find out the configurations of variables that impact crude oil prices. The first two objectives are addressed by using Necessary Condition Analysis and the final objective is met by using fuzzy set Qualitative Comparative Analysis (fsQCA). The results show that no variables were found necessary under fsQCA, but under NCA, all are considered as necessary variables with different effect sizes for crude oil price. fsQCA reveals eight equifinal pathways leading to higher crude oil price and a single pathway resulting in lower crude oil price. The findings suggest ways for traders, governments, corporates and analysts to consider the levels of independent variables that lead the Brent to trade in the market at higher or lower prices and to take decisions on the same.