Case Type: finance & economics.
Consulting Firm: McKinsey & Company first round job interview.
Industry Coverage: Oil, Gas, Petroleum Industry.
Case Interview Question #00167: What factors determine the world price of crude oil?
Possible Answer:
Consider the influence of the capital markets and how future spot oil prices and speculation in the market impact international oil prices. Prices in general economic terms are a function of 
supply and demand in the market.
Demand: Explore the factors aside from price that would effect demand such as new technology, import quotas, wars, etc. It turns out that global demand for oil is inelastic meaning that changes in prices have less of an effect on quantity demanded. If this is the case, fluctuations in supply will have a greater impact on the price.
Supply: Examine the impact of the various regional suppliers and their cost structures (for example, high cost in the U.S., low cost in the Middle East).
Ouch. It’s actually the refining capacity.
What you know as “oil price” is actually the sweet crude. The one that needs veeery little refining to be used. Heavier oils are of course cheaper. Now, refining capacity is extremely expensive and not very profitable, so people try to use it to the max. It also takes 5 years to get new capacity so it’s inelastic in the short term anyway.
When demand exceeds refining capacity, sweet crude increases A LOT because it can still be used, without being subject to the refining capacity constraints.
Lesson learned?
how do hedge funds influence oil prices? thank you
“Lifting of sanctions on Iraq, Iran and Libya will increase the supply of oil.” how does it increase the supply of oil?
if sanctions mean a country can’t export or can still export but a limited quantity than without sanctions, by lifting sanctions, oil can be exported more freely, and hence supply increases.
Moh’d -Bahrain
Now days, Crude Oil prices are purely driven by financial market, especially when we look at Major players in oil market, are traders first then supply and demand factors are coming in the last option.