What drives crude oil prices?

An analysis of 7 factors that influence oil markets,

with chart data updated monthly and quarterly

June 9, 2020 | 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

Global financial collapse

OPEC production
quota unchanged
Low spare
capacity
Iran-Iraq War
U.S. spare Saudis abandon Global
9-11 attacks pandemic
capacity swing producer role
exhausted reduces oil
demand
Asian financial crisis

Iranian
revolution OPEC cuts targets
OPEC cuts targets 4.2 mmbpd
Arab Oil Embargo Iraq invades Kuwait 1.7 mmbpd

Sources: U.S. Energy Information Administration, Refinitiv

June 9, 2020 2
World oil prices move together due to arbitrage

Sources: Bloomberg, Refinitiv

June 9, 2020 3
Crude oil prices are the primary driver of petroleum product
prices

Sources: EIA Short Term Energy Outlook, Refinitiv

June 9, 2020 4
Economic growth has a strong impact on oil consumption

Sources: U.S. Energy Information Administration, Oxford Economics

June 9, 2020 5
Changes in expectations of economic growth can affect oil prices

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).
Source: Oxford Economics

June 9, 2020 6
In OECD countries, price increases have coincided with lower
consumption

Sources: EIA Short Term Energy Outlook, Refinitiv

June 9, 2020 7
Rising oil prices held down global oil consumption growth from
2005-2008, despite high economic growth

Sources: EIA Short Term Energy Outlook, Refinitiv

June 9, 2020 8
Changes in non-OPEC production can affect oil prices

Sources: EIA Short Term Energy Outlook, Refinitiv

June 9, 2020 9
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.

Sources: EIA Short Term Energy Outlook

June 9, 2020 10
Changes in Saudi Arabia crude oil production can affect oil prices

Sources: U.S. Energy Information Administration, Refinitiv

June 9, 2020 11
Unplanned supply disruptions tighten world oil markets and push
prices higher

Sources: U.S. Energy Information Administration

June 9, 2020 12
During 2003-2008, OPEC’s spare production levels were low,
limiting its ability to respond to demand and price increases

Sources: EIA Short Term Energy Outlook, Refinitiv

June 9, 2020 13
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, Refinitiv

June 9, 2020 14
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, Refinitiv

June 9, 2020 15
Open interest in crude oil futures grew over the last decade as
more participants entered the market

Source: Bloomberg

June 9, 2020 16
Physical participants’ (producers, merchants, processors, and end users) U.S.
futures market contract positions

Source: Commodity Futures Trading Commission, Commitments of Traders

June 9, 2020 17
Money managers tend to be net long in the U.S. oil futures
market

Source: Commodity Futures Trading Commission, Commitments of Traders

June 9, 2020 18
Crude oil plays a major role in commodity investment

Source: Bloomberg

June 9, 2020 19
Commodity index investment flows have tended to move
together with commodity prices

* Note: CFTC discontinued the collection of index investment data in November 2015.

Source: Bloomberg, Commodity Futures Trading Commission (CFTC)

June 9, 2020 20
Correlations (+ or -) between daily price changes of crude oil
futures and other commodities generally rose in recent years

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Natural Gas 000101000111000000001100000000#0000000000#0000#00000000000000#0#00000
Gold 00#00000000001000001110000101#01110100000000#000#000###000#0000#00##0
Copper #0#00000#00#010000001011011111010111111001000#01000010000000000000001
Silver 00#0000#000001000001110000111000010100000000#0000000000000000000000#0
Soy #0#0#0#000000000000010110100000000100000#00#00#0000000000000#00#00000
Corn #0##000#000000000#001001100100#000000000#0#000#00000#0000000#0#0#00#1
Wheat 00#0000#0000#0001##00000110100000000000#####0#0#0000#0000000##00000#0

< -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
Note: Correlations computed quarterly

June 9, 2020 21
Correlations (+ or -) between daily returns on crude oil futures
and financial investments have also strengthened

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
S & P 500 ####00###0#000#0000#0#0001101111#111011001000000000010000##0000000000
U.S. Dollar ###############0##0#######################0#######0#0##0##0####0##000
U.S. Bonds 0000#000#00#00###0#0#0#####################0##0#########0##0#########
WTI Implied Volatility 0##0#00#000#0#0####000##########0#########0##0####################0#0
Inflation Expectations 000#0000000011000000101#0000010001100100#100000001101110000##00101100

< -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

Note: Correlations computed quarterly

June 9, 2020 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

(202) 586-8800 | email: [email protected]

June 9, 2020 23