Many, many factors can influence the price of crude oil either directly or indirectly. Some of the major factors influencing US crude oil prices are:
- US weather – mostly winter, as the demand for heating oil impacts crude oil prices. The Northeastern part of the US is the world's single largest consumer of heating oil.
- Geopolitical events - in any oil-producing region of the world where conflicts exist that could potentially interrupt supply.
- US dollar vs. foreign currencies - as mentioned previously, a devalued US dollar gives foreign investors more money to buy crude oil contracts and, vice versa, a stronger US dollar discourages foreign investment in crude oil contracts.
- US economy - strength or weakness directly impacts the perception of energy consumption. Several economic indicators are released weekly.
- World economy - as stated in the introduction, we are now in a truly global economy and what happens in one country can affect all others.
- Production & imports vs. demand - reports on domestic oil production & imports vs. consumption can cause prices to vary greatly. Some of the reports/statistics are listed below:
- Baker Hughes Drilling Report of active rigs - this oilfield service company keeps track of the total number of rigs actively drilling for oil and gas, and they report the statistics weekly. A rise in rigs means more potential supply coming-on down-the-road. A drop in the rig count could mean less supply down the road.
- West Texas Intermediate (WTI) crude vs. Brent North Sea crude - Brent crude oil is presently the global standard and trades in London. Its prices reflect demand in continental Europe, which can influence the price of imported crude here in the US.
- Weekly Crude Oil & Distillates Inventory Report (Energy Information Agency) - The Department of Energy releases a report every week that gives the current amount of crude oil and distillates in the nation's storage facilities. (Distillates include heating oil, diesel, gasoline, etc.) Increases in the inventory are viewed as an increase in supply, while decreases are seen as an indicator of increased demand. Another key piece of information presented is that of "refinery utilization". The higher the utilization percentage, the higher the demand for crude and vice versa.
- OPEC - The Organization of the Petroleum Exporting Countries, OPEC, was formed in 1960 by the first five members including Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela and has 14 members as of May 2017. OPEC members control about 73% of the world's total proved oil reserves and produced 44% of the world's total crude oil in 2016. OPEC has a significant impact on the oil market, managing the oil production, and oil price.
- Cross-commodity markets – as we will see in future lessons, most fuels, such as gasoline, diesel fuel, heating oil, and jet fuel, are all produced from crude oil. The demand shift for these commodities, such as travel season and weather change, will also impact the demand of crude oil. The EIA Weekly Crude Oil & Distillates Inventory Report also lists inventory changes for these commodities.
The following videos go into greater detail about the factors which can influence crude oil prices. Please note that some of the statistics might be a bit out of date, but please do not worry about that. These are just examples and are meant to teach you about how the various factors influence the market. You will not be responsible for the example details.
(The lecture notes can be found in the Lesson 2 module in Canvas (Lesson 2: Supply/Demand Fundamentals for Natural Gas & Crude Oil.)
Fundamental Factors Part 1: Weather and the US Economy
Fundamental Factors Part 2: International Economy, US Exchange Rate and Geopolitical Events
Fundamental Factors Part 3: Supply & Demand Statistics