Fundamental Analysis of Crude Oil Price

Overview

This chapter examines crude oil prices from the perspective of two fundamentals. One is supply-and-demand balance and the other is a geopolitical factor. They are the basic fundamentals of crude oil price. This fact is straightforward to understand: Supply-and-demand balance largely dictates virtually all commodity futures price. While the strategic role of oil for almost every country determines that oil price is bounded to be tied tightly with the geopolitical factors.


Speculative Activity

EIA analysts believe that the change in the relationship between prices and Organization for Economic Cooperation. The wholesale price spread is the difference between the wholesale price of gasoline and the spot price of crude oil. With the increased desire to shed risk, there has been a much larger role in the market for those prepared to bear this risk, the speculators. Although changes in the net position of non-commercial participants in WTI futures contracts appear to be in relation to changes in WTI spot prices in the very short run, the overall trend of increasing WTI spot prices is independent of the participation of speculators in the market.

The increased upstream risk has combined with constraints in the downstream to hinder the smooth provision of available supply to demand centers. Weather anomalies have created an added risk to oil production in hurricane-prone regions, and the weak US dollar has masked the oil price rise in some regions that would otherwise have induced lower oil demand. The new role of speculative money in the market is more a function of a shift in the inventory and price relationship.

The Energy Information Administration (EIA)

The EIA is a statistical agency of the U.S. Department of Energy and was created by Congress in 1977. Its mission is to provide policy-independent data, forecasts, and analysis to promote sound policy making, efficient markets, and public understanding regarding energy and its interaction with the economy and the environment. Energy products covered by EIA are:

(1) Petroleum Including crude oil, gasoline, heating oil, diesel, propane, jet fuel, and other petroleum based products.

(2) Natural Gas Including crude oil, gasoline, heating oil, diesel, propane, jet fuel, and other petroleum based products.
(3) Electricity Including sales, revenue and prices, power plants, fuel use, stocks, generation, trade, and demand & emissions.
(4) Coal Including reserves, including production, prices, employment and productivity, distribution, stocks and imports and exports.
(5) Nuclear Including Uranium fuel, including nuclear reactors, generation and spent fuel.

 

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