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  • www.eia.govU.S. Energy Information Administration Independent Statistics & Analysis

    What drives crude oil prices?

    April 12, 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

    April 12, 2016 2

    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

    3

    Sources: Bloomberg, Thomson Reuters

    April 12, 2016

    $/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

    4

    Sources: EIA Short Term Energy Outlook, Thomson Reuters

    April 12, 2016

  • Economic growth has a strong impact on oil consumption

    5

    Sources: U.S. Energy Information Administration, IHS Global Insight

    April 12, 2016

  • Changes in expectations of economic growth in can affect oil

    prices

    6

    Source: IHS Global Insight

    April 12, 2016

    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

    7

    Sources: EIA Short Term Energy Outlook, Thomson Reuters

    April 12, 2016

    percent change (year-on-year) price per barrel (real 2010 dollars)

    OECD liquid fuels consumption WTI crude oil price

    2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

    2018

    -6

    -4

    -2

    0

    2

    4

    6

    0

    50

    100

    150

  • Rising oil prices held down global oil consumption growth from

    2005-2008, despite high economic growth

    8

    Sources: EIA Short Term Energy Outlook, Thomson Reuters

    April 12, 2016

  • Changes in non-OPEC production can affect oil prices

    9

    Sources: EIA Short Term Energy Outlook, Thomson Reuters

    April 12, 2016

  • 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

    10

    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.

    April 12, 2016

  • Changes in Saudi Arabia crude oil production can affect oil

    prices

    11

    Sources: U.S. Energy Information Administration, Thomson Reuters

    April 12, 2016

    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

    12April 12, 2016

    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

    0

    1

    2

    3

    4

    png/non_opec_supply_expectation.pngpng/non_opec_supply_expectation.png

  • Sources: EIA Short Term Energy Outlook, Thomson Reuters

    During 2003-2008, OPECs spare production levels were low,

    limiting its ability to respond to demand and price increases

    13April 12, 2016

  • The years 2003-2008 experienced periods of very strong economic and oil

    demand growth, slow supply growth and tight spare capacity

    14

    Sources: EIA Short Term Energy Outlook, Thomson Reuters

    April 12, 2016

  • Inventory builds go hand-in-hand with increases in future oil

    prices relative to current prices (and vice versa)

    15

    Sources: EIA Short Term Energy Outlook, Thomson Reuters

    April 12, 2016

    million barrels change (year-on-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

    16

    Source: Bloomberg

    April 12, 2016

    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

    emf/active_trading.emfemf/active_trading.emf

  • Physical participants (producers, merchants, processors, and end users) U.S.

    futures market contract positions

    17

    Source: CFTC Commitment of Traders

    April 12, 2016

    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

    18

    Source: CFTC Commitment of Traders

    April 12, 2016

    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

    19

    2015 Target Weights of the Bloomberg Commodity Index

    Source: Bloomberg

    April 12, 2016

    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

    20

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

    April 12, 2016

    percent change (year-on-year)

    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" *

    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

    21

    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

    April 12, 2016

    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 0 0 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 1 0 0 0 0 1

    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 0 0 0 0 0 0

    Soy # 0 # 0 # 0 #