What drives crude oil prices? An analysis of 7 factors that influence oil markets, with chart data updated monthly and quarterly Washington, DC U.S. Energy Information Administration Independent Statistics & Analysis www.eia.gov
Crude oil prices react to a variety of geopolitical and economic events price per barrel (real 21 dollars) 15 Global financial collapse 125 1 75 5 U.S. spare capacity exhausted Iran-Iraq War Low spare capacity 9-11 attacks Saudis abandon swing producer role Asian financial crisis 25 Iranian revolution Arab Oil Embargo Iraq invades Kuwait 197 1975 198 1985 199 1995 2 25 21 215 imported refiner acquisition cost of crude oil OPEC cuts targets 1.7 mmbpd WTI crude oil price OPEC cuts targets 4.2 mmbpd Sources: U.S. Energy Information Administration, Thomson Reuters 2
World oil prices move together due to arbitrage $/bbl (real 21 dollars, monthly average) 16 14 12 1 8 6 4 2 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 WTI Brent Mars Tapis Dubai Sources: Bloomberg, Thomson Reuters 3
Crude oil prices are the primary driver of petroleum product prices Sources: EIA Short Term Energy Outlook, Thomson Reuters 4
Economic growth has a strong impact on oil consumption Sources: U.S. Energy Information Administration, IHS Global Insight 5
Changes in expectations of economic growth in can affect oil prices percent GDP growth in non-oecd countries (annual expectations) 8 6 4 2 Jan '12 Jul '12 Jan '13 Jul '13 Jan '14 Jul '14 Jan '15 Jul '15 forecast year: 212 213 214 215 216 Note: Starting in January of each year, each line shows the expected forecast of GDP growth for the specified calendar year, which tends to move toward the actual realized growth outcome as the year progresses. Expectations continue to evolve into the next calendar year as revised GDP data become available (e.g., 28 GDP expectations are revised even during 29). Source: IHS Global Insight 6
In OECD countries, price increases have coincided with lower consumption percent change (year-on-year) 6 price per barrel (real 21 dollars) 15 4 1 2 5-2 -4-6 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 OECD liquid fuels consumption WTI crude oil price Sources: EIA Short Term Energy Outlook, Thomson Reuters 7
Rising oil prices held down global oil consumption growth from 25-28, despite high economic growth Sources: EIA Short Term Energy Outlook, Thomson Reuters 8
Changes in non-opec production can affect oil prices Sources: EIA Short Term Energy Outlook, Thomson Reuters 9
million barrels per day (annual expectations) 59. 58.5 58. 57.5 57. 56.5 Non-OPEC supply expectations indicate changes in market sentiment concerning oil supply Note: Starting in January of each year, each line shows the expected forecast of non-opec supply for the specified calendar year, which tends to move toward the actual realized supply outcome as the year progresses. 56. 55.5 55. 54.5 54. 53.5 53. 52.5 52. 51.5 51. 211 212 213 214 215 forecast year: 212 213 214 215 216 Sources: EIA Short Term Energy Outlook 1
Changes in Saudi Arabia crude oil production can affect oil prices million barrels per day (year-on-year) 2.5 2 1.5 1.5 -.5-1 percent change (year-on-year) 1 8 6 4 2-2 -4-1.5 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215-6 Saudi Arabia crude oil production WTI percent change Sources: U.S. Energy Information Administration, Thomson Reuters 11
Unplanned supply disruptions tighten world oil markets and push prices higher million barrels per day 4 3 2 1 Jan '11 Jul '11 Jan '12 Jul '12 Jan '13 Jul '13 Jan '14 Jul '14 Jan '15 Jul '15 OPEC supply disruptions non-opec supply disruptions Sources: U.S. Energy Information Administration 12
During 23-28, OPEC s spare production levels were low, limiting its ability to respond to demand and price increases Sources: EIA Short Term Energy Outlook, Thomson Reuters 13
The years 23-28 experienced periods of very strong economic and oil demand growth, slow supply growth and tight spare capacity Sources: EIA Short Term Energy Outlook, Thomson Reuters 14
Inventory builds go hand-in-hand with increases in future oil prices relative to current prices (and vice versa) million barrels change (year-on-year) 25 2 15 1 5-5 -1-15 $/bbl change (year-on-year) 25 2 15 1 5-5 -1-15 -2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215-2 OECD liquid fuels inventory WTI crude 12th - 1st futures price spread Sources: EIA Short Term Energy Outlook, Thomson Reuters 15
Open interest in crude oil futures grew over the last decade as more participants entered the market number of contracts (thousands) 2, 1,8 1,6 1,4 1,2 1, 8 6 4 2 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 Source: Bloomberg 16
Physical participants (producers, merchants, processors, and end users) U.S. futures market contract positions number of contracts (thousands) 5 4 3 2 1-1 -2-3 -4-5 -6 28 29 21 211 212 213 214 215 producers/merchants long producers/merchants short producers/merchants net Source: CFTC Commitment of Traders 17
Money managers tend to be net long in the U.S. oil futures market number of contracts (thousands) 4 35 3 25 2 15 1 5-5 -1-15 -2 28 29 21 211 212 213 214 215 money managers long money managers short money managers net Source: CFTC Commitment of Traders 18
Crude oil plays a major role in commodity investment 215 Target Weights of the Bloomberg Commodity Index Lean Hogs: 1.9 % Live Cattle: 3.3 % Nickel: 2.1 % Zinc: 2.4 % Silver: 4.3 % Aluminum: 4.6 % Crude Oil: WTI: 7.8 % Crude Oil: Brent: 7.2 % Natural Gas: 8.7 % Copper: 7.5 % Heating Oil: 3.8 % Gasoline: 3.7 % Gold: 11.9 % Cotton: 1.5 % Coffee: 2.2 % Soy Meal: 2.7 % Soybean Oil: 2.8 % Sugar: 4. % Wheat: 4.5 % Soybeans: 5.7 % Corn: 7.2 % Source: Bloomberg 19
Commodity index investment flows have tended to move together with commodity prices percent change (year-on-year) 2 15 1 5-5 -1 26 27 28 29 21 211 212 213 214 215 Bloomberg Commodity Index assets under management (5 largest public U.S. commodity index funds) commodity index assets under management reported to CFTC under "special call" Source: Bloomberg, Commodity Futures Trading Commission (CFTC) 2
Correlations (+ or -) between daily price changes of crude oil futures and other commodities generally rose in recent years Date 23 24 25 26 27 28 29 21 211 212 213 214 215 Natural Gas 1 1 1 1 1 1 1 # # Gold # 1 1 1 1 1 1 # 1 1 1 1 # Copper # # # # 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 Silver # # 1 1 1 1 1 1 1 1 1 # Soy # # # # 1 1 1 1 1 # # Corn # # # # # 1 1 1 1 # # # Wheat # # # 1 # # 1 1 1 # # # # # < -.65 -.65 to -.4 -.4 to -.25 -.25 to.25.25 to.4.4 to.65 >.65 Negative correlation Positive correlation Note: Correlations computed quarterly 21
Correlations (+ or -) between daily returns on crude oil futures and financial investments have also strengthened Date 23 24 25 26 27 28 29 21 211 212 213 214 215 S & P 5 # # # # # # # # # # # 1 1 1 1 1 1 # 1 1 1 1 1 1 U.S. Dollar # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # - # - # U.S. Bonds # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # - # # WTI Implied Volatility # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # -1 # -1 # # Inflation Expectations # 1 1 1 1 # 1 1 1 1 # 1 1 1 < -.65 -.65 to -.4 -.4 to -.25 -.25 to.25.25 to.4.4 to.65 >.65 Negative correlation Positive correlation Note: Correlations computed quarterly 22
For more information U.S. Energy Information Administration home page www.eia.gov Short-Term Energy Outlook www.eia.gov/steo Annual Energy Outlook www.eia.gov/aeo International Energy Outlook www.eia.gov/ieo Monthly Energy Review www.eia.gov/mer EIA Information Center (22) 586-88 email: InfoCtr@eia.gov 23