Effects of fundamentals, geopolitical risk and expectations factors on crude oil prices

Though there are diverse factors that influence crude oil prices, we examine the degree of influence of factors, such as demand, supply, and geopolitical and economic agents’ expectations. The purpose of this study is to determine the necessary factors that influence crude oil prices, to find the level of factors required to produce the specific level of outcome, and to find out the combinations of variables that impact crude oil prices by employing Necessary Condition Analysis (NCA) and fuzzy set Qualitative Comparative Analysis (fsQCA). The results show that no variables were found necessary under fsQCA, but under NCA, all were considered as necessary variables with different effect sizes for the crude oil price. fsQCA reveals eight combinations of independent variables leading to higher crude oil prices and a single combination of independent variables resulting in lower crude oil prices. This study is the first of its kind to examine the levels of independent variables required to achieve the desired level of oil price. It is also the first study to draw a comparison between NCA and fsQCA in the crude oil market. The findings suggest several ways for policymakers, traders, corporates, and analysts to consider the lower or higher levels of independent variables that lead Brent to trade at higher or lower prices in the market using fsQCA. fsQCA helps to track the Brent price level when the behavior of the independent variable(s) changes together or alone. When the stakeholders are aware of different combinations that lead Brent to trade at higher and lower levels, they shall make more informed decisions. At the same time, using NCA they may also analyze the degree of impact of independent variables on the specific level of the Brent oil price.