Crude Oil

Crude oil is the most important commodity in the world. It fuels transport, feeds petrochemical plants and influences inflation, currencies and stock markets. The oil market trades more than 100 million barrels a day of physical supply, and oil futures are among the most liquid contracts on any exchange. Oil prices are driven by a constant tug of war between producers, consumers, governments and traders, which makes them volatile and closely watched.

The benchmarks#

Brent prices about two thirds of the world's internationally traded crude. WTI usually trades a few dollars below Brent; the WTI Brent spread reflects US supply, pipeline capacity and export costs. See Futures Spreads Explained.

Reading an oil futures trade#

What moves oil prices#

Supply#

• OPEC+: OPEC members, led by Saudi Arabia, and allies including Russia, coordinate production targets. Their meetings can move prices sharply.
• US shale: the US became the world's largest crude producer in the 2010s. Shale output responds to prices, but with a lag of months.
• Disruptions: wars, sanctions (on Iran, Venezuela, Russia), hurricanes in the Gulf of Mexico, pipeline outages and attacks on shipping.
• Spare capacity: mainly held by Saudi Arabia and the UAE; low spare capacity makes prices more sensitive.

Demand#

• Global growth, especially in China, India and the US.
• Seasonal driving and heating demand.
• Energy transition: electric vehicles and efficiency slowly reduce oil demand growth.

Inventories#

Weekly US data from the Energy Information Administration (EIA), usually released Wednesdays at 10:30 a.m. Eastern, often moves prices when crude stocks change more than expected. See Storage and Inventories.

Financial factors#

• The US dollar: a stronger dollar often weighs on oil.
• Speculative positioning: shown in CFTC reports. See Sentiment Data.
• Risk sentiment: oil often falls in broad market selloffs.

The oil curve#

When supply is tight, oil futures trade in backwardation, with near months above later months. When supply is ample or storage is filling, the curve moves into contango. In 2022, the Brent curve was in steep backwardation; in 2020, it was in extreme contango. See Contango and Backwardation.

Price history highlights#

See Energy Markets.

How traders approach oil#

• Fundamental traders track supply and demand balances, inventories and OPEC+ policy.
• Technical traders use trends and levels; oil often trends strongly. See Trend Following.
• Spread traders trade calendar spreads, WTI Brent and crack spreads. See Crack Spreads.
• Event traders focus on OPEC+ meetings and EIA reports. See News Trading.
• Options traders trade volatility around geopolitical events.

Risks#

• High volatility and gaps on news.
• Delivery risk in physically settled WTI near expiry. See Physical Delivery vs Cash Settlement.
• Roll costs for ETFs in contango, as the USO fund experienced in 2020.
• Policy risk: strategic reserve releases, sanctions and price caps.

Frequently asked questions#

What is the difference between WTI and Brent crude?#

WTI is US crude delivered at Cushing, Oklahoma; Brent is a North Sea based benchmark used to price most internationally traded oil.

What moves oil prices the most?#

OPEC+ production decisions, global economic growth, US shale output, inventories, geopolitical events and the US dollar.

When is the EIA oil inventory report released?#

Usually on Wednesdays at 10:30 a.m. Eastern time, or Thursday after a Monday holiday.

Next, learn about natural gas in Natural Gas.