Crude oil has a wide range of uses and is an absolute necessity, so the stability of oil prices is very important to the global economy and people's livelihood. However, the oil market has always been special and complex, with many sensitive factors, and oil prices are often more volatile. This may be attributed to the limited crude oil reserves and uneven distribution of reserves. Regardless of merchants, users, or even speculators, they all pay great attention to every move in the oil market.
Since it is a non-renewable energy source, supply and demand issues naturally exist. When observing the supply and demand of crude oil, most people refer to reports from energy-related organizations. OPEC (Organization of Petroleum Exporting Countries) and IEA (International Energy Agency) regularly provide information on expected supply and demand in the crude oil market.
With the advancement of crude oil extraction technology, the supply of shale oil in the United States has increased significantly. The short-term energy report of EIA (U.S. Energy Information Administration) and the weekly inventory data of EIA and API (American Petroleum Institute) have also become the focus of investors. In addition, the three major monthly reports of crude oil (OPEC, IEA, EIA) can have a significant impact on the oil market, but it should be noted that the calculation methods of supply and demand in each report are slightly different, so the data can be cross-referenced for analysis.
The shale oil revolution in the United States has led to an imbalance in the supply and demand of the oil market, and the influence of OPEC, led by Saudi Arabia, on oil prices has also begun to decline. In order to regain control of the market, OPEC has joined forces with non-OPEC oil-producing countries led by Russia to form OPEC+, hoping to control production and influence oil prices. Therefore, the alliance's production reduction policy has a great relationship with oil price fluctuations.
War, regime change, national policies and diplomacy, natural disasters and other factors are key factors affecting oil prices. Once relevant news breaks out, oil prices can fluctuate at any time. The situation in the Middle East is often unstable, and when some oil-producing countries are in full-scale war, local conflicts or on the verge of war, the market expects that crude oil supply may be affected, which can easily stimulate oil prices to rise. In addition, some storms can also interfere with the supply and demand of the oil market. They are common in summer and affect oil production and refineries in the Gulf of Mexico.
*The outbreak of the new coronavirus pandemic in 2020 caused a sharp decline in crude oil demand, which led to a crude oil price war between Saudi Arabia and Russia, resulting in a historic plunge in oil prices.
Crude oil is mainly priced in US dollars, so oil prices are often negatively correlated with the US dollar. However, the oil market itself is affected by many factors, so this negative correlation is sometimes strong and sometimes weak.
In addition, when oil prices rise, production costs also rise, and the prices of daily necessities also increase, which can easily cause inflation. Once inflation expectations rise, oil prices may also rise. The two have a mutually reinforcing causal relationship.
The above are just a few of the factors that affect oil prices. Investors must have a basic understanding before entering the oil market.
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