Why can war risk move oil prices before supply is cut?
Show answer & explanation
Answer: Supply, shipping, and insurance risk get repriced
Oil companies raise prices to punish the countries at war — Oil is priced on open markets where thousands of buyers and sellers trade, so no company sets the price, and none of them raises it to punish anyone. What moves the price is how traders judge the risk to future barrels.
Supply, shipping, and insurance risk get repriced ✓ — Correct! Oil prices can move before supply is cut because markets reprice future risk. If war raises the chance of disruption in production, transport, or insurance, prices can jump early.
Prices wait for visible shortages — Partly right, but too late. Visible shortages matter, yet prices often move earlier, when markets start expecting disruption rather than waiting to count missing barrels.
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