Lack of Substitutes: Consumers are limited in their ability to substitute between fuels . So, while consumers can substitute readily between food products when relative prices shift, most do not have that option in fueling their vehicles.
Low Petroleum Inventory : To store huge stocks of petroleum is difficult and costlier. Most countries have Petroleum Stocks that last up to few weeks only.
Because of the above mentioned reasons , if there is any disruption in supply of petroleum , or even a speculation that supply may disrupt due to any reason , markets react strongly fearing sudden increase in prices and lack of supply. Petroleum is such a commodity that every country has to purchase , at whatever cost possible . If they don't but it today , they need to buy double quantity tomorrow , and by then prices might have gone even higher.
Fundamental supply and demand factors provide the best explanation for the crude oil price swings.
When demand for a commodity like oil exceeds production capacity, the price will rise quite sharply because both demand and supply are fairly inelastic in the short run.
Shifts in demand or supply, either up or down, will cause relatively larger swings in market price.
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