What drives crude oil prices?
August 9, 2016 | Washington, DC
An analysis of 7 factors that influence oil markets,
with chart data updated monthly and quarterly
price per barrel (real 2010 dollars)
imported refiner acquisition cost of crude oil WTI crude oil price
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
0 25 50 75 100 125 150
Crude oil prices react to a variety of geopolitical and economic events
Low spare capacity
Iraq invades Kuwait Saudis abandon swing producer role Iran-Iraq War
Iranian revolution Arab Oil Embargo
Asian financial crisis U.S. spare
capacity exhausted
Global financial collapse
9-11 attacks
OPEC cuts targets 1.7 mmbpd
OPEC cuts targets 4.2 mmbpd
Sources: U.S. Energy Information Administration, Thomson Reuters
World oil prices move together due to arbitrage
Sources: Bloomberg, Thomson Reuters
$/bbl (real 2010 dollars, monthly average)
WTI Brent Mars Tapis Dubai
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0
20 40 60 80 100 120 140 160
Crude oil prices are the primary driver of petroleum product prices
Sources: EIA Short Term Energy Outlook, Thomson Reuters
Economic growth has a strong impact on oil consumption
Sources: U.S. Energy Information Administration, IHS Global Insight
Changes in expectations of economic growth in can affect oil prices
Source: IHS Global Insight
percent GDP growth in non-OECD countries (annual expectations)
forecast year: 2013 2014 2015 2016 2017
2012 2013 2014 2015 2016
0 2 4 6 8
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., 2008 GDP expectations are revised even during 2009).
In OECD countries, price increases have coincided with lower consumption
Sources: EIA Short Term Energy Outlook, Thomson Reuters
Rising oil prices held down global oil consumption growth from 2005-2008, despite high economic growth
Sources: EIA Short Term Energy Outlook, Thomson Reuters
Changes in non-OPEC production can affect oil prices
Sources: EIA Short Term Energy Outlook, Thomson Reuters
million barrels per day (annual expectations)
forecast year: 2013 2014 2015 2016 2017
2012 2013 2014 2015 2016
52.5 53.0 53.5 54.0 54.5 55.0 55.5 56.0 56.5 57.0 57.5 58.0 58.5 59.0
Non-OPEC supply expectations indicate changes in market sentiment concerning oil supply
Sources: EIA Short Term Energy Outlook
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.
Changes in Saudi Arabia crude oil production can affect oil prices
Sources: U.S. Energy Information Administration, Thomson Reuters
million barrels per day (year-on-year) percent change (year-on-year)
Saudi Arabia crude oil production WTI percent change
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 -1.5
-1 -0.5 0 0.5 1 1.5 2 2.5
-60 -40 -20 0 20 40 60 80 100
Sources: U.S. Energy Information Administration
Unplanned supply disruptions tighten world oil markets and push prices higher
million barrels per day
OPEC supply disruptions non-OPEC supply disruptions
Jan '11 Jul '11 Jan '12 Jul '12 Jan '13 Jul '13 Jan '14 Jul '14 Jan '15 Jul '15 Jan '16 Jul '16 0
1 2 3 4
Sources: EIA Short Term Energy Outlook, Thomson Reuters
During 2003-2008, OPEC’s spare production levels were low, limiting its ability to respond to demand and price increases
The years 2003-2008 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
Inventory builds go hand-in-hand with increases in future oil prices relative to current prices (and vice versa)
Sources: EIA Short Term Energy Outlook, Thomson Reuters
million barrels change (year over year) $/bbl change (year-on-year)
OECD liquid fuels inventory WTI crude 12th - 1st futures price spread
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 -200
-150 -100 -50 0 50 100 150 200 250 300 350
-20 -15 -10 -5 0 5 10 15 20 25 30 35
Open interest in crude oil futures grew over the last decade as more participants entered the market
Source: Bloomberg
number of contracts (thousands)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000
Physical participants’ (producers, merchants, processors, and end users) U.S.
futures market contract positions
Source: CFTC Commitment of Traders number of contracts (thousands)
producers/merchants long producers/merchants short producers/merchants net
2008 2009 2010 2011 2012 2013 2014 2015 2016
-600 -500 -400 -300 -200 -100 0 100 200 300 400 500
Money managers tend to be net long in the U.S. oil futures market
Source: CFTC Commitment of Traders number of contracts (thousands)
money managers long money managers short money managers net
2008 2009 2010 2011 2012 2013 2014 2015 2016
-250 -200 -150 -100 -50 0 50 100 150 200 250 300 350 400
Crude oil plays a major role in commodity investment
2015 Target Weights of the Bloomberg Commodity Index
Source: Bloomberg
Crude Oil: WTI: 7.8 %
Crude Oil: Brent: 7.2 %
Natural Gas: 8.7 %
Heating Oil: 3.8 %
Gasoline: 3.7 %
Corn: 7.2 %
Soybeans: 5.7 % Wheat: 4.5 %
Sugar: 4.0 % Soybean Oil: 2.8 %
Soy Meal: 2.7 % Coffee: 2.2 % Cotton: 1.5 % Gold: 11.9 % Copper: 7.5 % Aluminum: 4.6 %
Silver: 4.3 % Zinc: 2.4 %
Nickel: 2.1 % Live Cattle: 3.3 %
Lean Hogs: 1.9 %
Commodity index investment flows have tended to move together with commodity prices
* Note: CFTC discontinued the collection of index investment data in November 2015.
percent change (year-on-year)
Bloomberg L.P. Commodity Index
assets under management (5 largest public U.S. commodity index funds)
commodity index assets under management reported to CFTC under "special call" *
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
-100 -50 0 50 100 150 200
Source: Bloomberg, Commodity Futures Trading Commission (CFTC)
Correlations (+ or -) between daily price changes of crude oil futures and other commodities generally rose in recent years
Note: Correlations computed quarterly
< -0.65 -0.65 to -0.4 -0.4 to -0.25 -0.25 to 0.25 0.25 to 0.4 0.4 to 0.65 > 0.65
Negative correlation Positive correlation
Date
Natural Gas 0 0 0 1 0 1 0 0 0 1 1 1 0 0 0 0 0 0 0 0 1 1 0 0 0 0 0 0 0 0 # 0 0 0 0 0 0 0 0 0 0 # 0 0 0 000 0 0 0 0 Gold 0 0# 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 1 1 1 0 0 0 0 1 0 1# 0 1 1 1 0 1 0 0 0 0 0 0 0 0 # 0 0 0 0 0 # Copper # 0 # 0 0 0 0 0 # 0 0 # 0 1 0 0 0 0 0 0 1 0 1 1 0 1 1 1 1 1 0 1 0 1 1 1 1 1 1 0 0 1 0 0 0 0 100 00 1 0 Silver 0 0 # 0 0 0 0# 0 0 0 0 0 1 0 0 0 0 0 1 1 1 0 0 0 0 1 1 1 0 0 0 0 1 0 1 0 0 0 0 0 0 0 0 # 0 000 0 0 0 0 Soy # 0 # 0 # 0 # 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 1 1 0 1 0 0 0 0 0 0 0 0 1 0 0 0 0 0 # 0 0 # 0 00 0 00 0 0 Corn # 0 # # 0 0 0 # 0 0 0 0 0 0 0 0 0# 0 0 1 0 0 1 1 0 0 1 0 0# 0 0 0 0 0 0 0 0 0 # 0 # 0 0 000 0 0 # 0 Wheat 0 0 # 0 0 0 0 # 0 0 0 0# 0 0 0 1# # 0 0 0 0 0 1 1 0 1 0 0 0 0 0 0 0 0 0 0 0# # # # # 0 0 0 0 0 0 # 0
2016 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Correlations (+ or -) between daily returns on crude oil futures and financial investments have also strengthened
Note: Correlations computed quarterly
< -0.65 -0.65 to -0.4 -0.4 to -0.25 -0.25 to 0.25 0.25 to 0.4 0.4 to 0.65 > 0.65
Negative correlation Positive correlation
Date
S & P 500 #### 0 0 # # # 0 # 0 0 0# 0 0 0 0 # 0# 0 0 0 1 1 0 1 1 1 1# 1 1 1 0 1 1 0 0 1 0 0 0 0 0 0 0 0 00 1 0 U.S. Dollar ## ### # # # # # # # ### 0## 0# ## # ### # # # ##### # # # # # # ## 0 # # # # # 0 0# U.S. Bonds 0 0 0 0 # 0 0 0# 0 0 # 0 0 # # # 0 # 0 # 0# #### ### ## ## # ### #### # 0 # # 0 # # # # WTI Implied Volatility 0## 0 # 0 0# 0 0 0# 0 # 0# # # # 0 0 0####### ### 0# # ##### ## 0# # 0 # # # # # Inflation Expectations 0 0 0 # 0 0 0 0 0 0 0 0 1 1 0 0 0 0 0 0 1 0 1# 0 0 0 0 0 1 0 0 0 1 1 0 0 1 0 0# 1 0 0 0 0 00 0 1 10 1 1
2016 2015
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
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
(202) 586-8800 | email: InfoCtr@eia.gov
