Price of oil

Overview

of oil from 1861 to 2020 from Our World in Data The price of oil, or the oil price, generally refers to the spot price of a barrel () of benchmark crude oil—a reference price for buyers and sellers of crude oil such as West Texas Intermediate (WTI), Brent Crude, Dubai Crude, OPEC Reference Basket, Tapis crude, Bonny Light, Urals oil, Isthmus, and Western Canadian Select (WCS) among others. Oil prices are determined by global supply and demand, rather than any country's domestic production level, although the Organization of the Petroleum Exporting Countries (OPEC) cartel increases oil prices.

Through the years

Before oil, whale oil was used in lamps, as lubrication, etc. It was very expensive. In 1804, its price was $0.5/gallon or $21/barrel, Beginning in the 1850s, petroleum quickly replaced whale oil use. resulting in the 1973 oil crisis, the Iranian Revolution in the 1979 oil crisis, the 2008 financial crisis, and the 2010s oil glut that led to the "largest oil price declines in modern history" in 2014 to 2016. The 70% decline in global oil prices was "one of the three biggest declines since World War II, and the longest lasting since the supply-driven collapse of 1986." By 2015, the United States had become the third-largest producer of oil and resumed exporting oil upon repeal of its 40-year export ban.

Conflict

The 2020 Russia–Saudi Arabia oil price war resulted in a 65% decline in global oil prices at the beginning of the COVID-19 pandemic. In 2021, the record-high energy prices were driven by a global surge in demand as the world recovered from the COVID-19 recession. By December 2021, an unexpected rebound in the demand for oil from United States, China and India, coupled with U.S. shale industry investors' "demands to hold the line on spending", has contributed to "tight" oil inventories globally. On 18 January 2022, as the price of Brent crude oil reached its highest since 2014—$88, concerns were raised about the rising cost of gasoline—which hit a record high in the United Kingdom. In March 2026, international oil prices surpassed the $100 per barrel threshold for the first time since 2022, primarily driven by the outbreak of the 2026 Iran war.

On 9 March, the brent crude benchmark surged to an intraday high of $119.50, a 29% increase, following strikes on energy infrastructure near Tehran and the effective closure of the Strait of Hormuz. Prices subsequently moderated to approximately $100 per barrel after G7 finance ministers announced a potential coordinated release of strategic petroleum reserves. During the crisis, Iranian officials suggested prices could exceed $200 per barrel if hostilities continued, while the United States executive branch characterized the price spike as a short-term consequence of regional security measures.

Structural drivers of global oil price

According to Our World in Data, in the nineteenth and early twentieth century the global crude oil prices were "relatively consistent." In the 1970s, there was a "significant increase" in the price of oil globally, the Arab Spring 2010s uprisings in Egypt and Libya, and the Syrian civil war (2011–24). The 2013 oil supply glut that led to the "largest oil price declines in modern history" in 2014 to 2016. The 70% decline in global oil prices was "one of the three biggest declines since World War II, and the longest lasting since the supply-driven collapse of 1986." By 2015 the United States was the 3rd-largest producer of oil moving from importer to exporter.

Analyses of oil price fluctuations

Oil prices are determined by global forces of supply and demand, according to the classical economic model of price determination in microeconomics. The demand for oil is highly dependent on global macroeconomic conditions. The study listed exogenous variables that can affect the price of oil: "regional supply and demand equations, the technology of refining, and government policy variables". Based on these exogenous variables, their proposed economic model would be able to determine the "levels of consumption, production, and price for each commodity in each region, the pattern of world trade flows, and the refinery capital structure and output in each region".

A widely cited 2008 The Review of Economics and Statistics article by Lutz Killian examined the extent to which "exogenous oil supply shocks"—such as the Iranian revolution (1978–1979), Iran–Iraq War (1980–1988), Persian Gulf War (1990–1991), Iraq War (2003), Civil unrest in Venezuela (2002–2003), and perhaps the Yom Kippur War/Arab oil embargo (1973–1974)"—explain changes in the price of oil." Killian stated that, by 2008, there was "widespread recognition" that "oil prices since 1973 must be considered endogenous with respect to global macroeconomic conditions". A 2019 Bank of Canada (BOC) report described the usefulness of a structural vector autoregressive (SVAR) model for conditional forecasts of global GDP growth and oil consumption in relation to four types of oil shocks.

The structural vector autoregressive model was proposed by the American econometrician and macroeconomist Christopher A. Sims in 1982 as an alternative statistical framework model for macroeconomists. According to the BOC report—using the SVAR model—"oil supply shocks were the dominant force during the 2014–15 oil price decline". A 2016 article in the Oxford Institute for Energy Studies describes how analysts offered differing views on why Goldman Sachs said that this structural shift was "reshaping global energy markets and bringing with it a new era of volatility" by "impacting markets, economies, industries and companies worldwide" and will keep the price of oil lower for a prolonged period. Others say that this cycle is like previous cycles and that prices will rise again.

Benchmark pricing

Major benchmark references, or pricing markers, include Brent, WTI, the OPEC Reference Basket (ORB)—introduced on 16 June 2005 and is made up of Saharan Blend (from Algeria), Girassol (from Angola), Oriente (from Ecuador), Rabi Light (from Gabon), Iran Heavy (from Iran), Basra Light (from Iraq), Kuwait Export (from Kuwait), Es Sider (from Libya), Bonny Light (from Nigeria), Qatar Marine (from Qatar), Arab Light (from Saudi Arabia), Murban (from UAE), and Merey (from Venezuela), Dubai Crude, and Tapis Crude (from Malaysia). In North America the benchmark price refers to the spot price of West Texas Intermediate (WTI), also known as Texas Light Sweet, a type of crude oil used as a benchmark in oil pricing and the underlying commodity of New York Mercantile Exchange's oil futures contracts. WTI is a light crude oil, lighter than Brent Crude oil.

It contains about 0.24% sulfur, rating it a sweet crude, sweeter than Brent. Its properties and production site make it ideal for being refined in the United States, mostly in the Midwest and Gulf Coast regions. WTI has an API gravity of around 39.6 (specific gravity approx. 0.827) per barrel (159 liters) of either WTI/light crude as traded on the New York Mercantile Exchange (NYMEX) for delivery at Cushing, Oklahoma. Cushing, Oklahoma, a major oil supply hub connecting oil suppliers to the Gulf Coast, has become the most significant trading hub for crude oil in North America. In Europe and some other parts of the world, the price of the oil benchmark is Brent Crude as traded on the Intercontinental Exchange (ICE, into which the International Petroleum Exchange has been incorporated) for delivery at Sullom Voe. Brent oil is produced in coastal waters (North Sea) of UK and Norway.

The total consumption of crude oil in UK and Norway is more than the oil production in these countries. So Brent crude market is very opaque with very low oil trade physically. Brent price is used widely to fix the prices of crude oil, LPG, LNG, natural gas, etc. trade globally including Middle East crude oils. There is a differential in the price of a barrel of oil based on its grade—determined by factors such as its specific gravity or API gravity and its sulfur content—and its location—for example, its proximity to tidewater and refineries. Heavier, sour crude oils lacking in tidewater access—such as Western Canadian Select—are less expensive than lighter, sweeter oil—such as WTI. The Energy Information Administration (EIA) uses the imported refiner acquisition cost, the weighted average cost of all oil imported into the US, as its "world oil price".

Global oil prices: a chronology

The price of oil remained "relatively consistent" from 1861 until the 1970s. and Canada began to establish their own national energy programs that were focused on security of supply of oil, then began to decline in "real terms from 1980 onwards, eroding OPEC's power over the global economy," according to The Economist. In the early 1980s, concurrent with the OPEC embargo, oil prices experienced a "rapid decline." In 1983, the New York Mercantile Exchange (NYMEX) launched crude oil futures contracts, and the London-based International Petroleum Exchange (IPE)—acquired by Intercontinental Exchange (ICE) in 2005— launched theirs in June 1988. The price of oil reached a peak of c. US$65 during the 1990 Persian Gulf crisis and war. The 1990 oil price shock occurred in response to the Iraqi invasion of Kuwait, according to the Brookings Institution.

There was a period of global recessions and the price of oil hit a low of before it peaked at a high of $45 on 11 September 2001, the day of the September 11 attacks, only to drop again to a low of $26 on 8 May 2003. The price rose to $80 with the U.S.-led invasion of Iraq. There were major energy crises in the 2000s including the 2010s oil glut with changes in the world oil market. (WTI) oil prices and gas prices, 1991 to 2017 Starting in 1999, the price of oil rose significantly. It was explained by the rising oil demand in countries like China and India. A dramatic increase from US$50 in early 2007, to a peak of US$147 in July 2008, was followed by a decline to US$34 in December 2008, as the 2008 financial crisis took hold. By May 2008, The United States was consuming approximately 21 million bpd and importing about 14 million bpd—60% with OPEC supply 16% and Venezuela 10%.

During the 2008 financial crisis, the price of oil underwent a significant decrease after the record peak of US$147.27 it reached on 11 July 2008. On 23 December 2008, WTI crude oil spot price fell to US$30.28 a barrel, the lowest since the 2008 financial crisis began. The price sharply rebounded after the crisis and rose to US$82 a barrel in 2009. On 31 January 2011, the Brent price hit $100 a barrel briefly for the first time since October 2008, on concerns that the 2011 Egyptian protests would "lead to the closure of the Suez Canal and disrupt oil supplies". For about three and half years the price largely remained in the $90–$120 range. From 2004 to 2014, OPEC was setting the global price of oil.

OPEC started setting a target price range of $100–110/bbl before the 2008 financial crisis Up until 2014, the dominant factor on the price of oil was from the demand side—from "China and other emerging economies". By 2014, production from unconventional reservoirs through hydraulic fracturing in the United States and oil production in Canada, caused oil production to surge globally "on a scale that most oil exporters had not anticipated" resulting in "turmoil in prices." The United States oil production was greater than that of Russia and Saudi Arabia, and according to some, broke OPEC's control of the price of oil.

According to Ambrose Evans-Pritchard, in 2014–2015, Saudi Arabia flooded the market with inexpensive crude oil in a failed attempted to slow down US shale oil production, and caused a "positive supply shock" which saved consumers about US$2 trillion and "benefited the world economy". Between June 2014 and January 2015, according to the World Bank, the collapse in the price of oil was the third largest since 1986. In early 2015, the US oil price fell below $50 per barrel dragging Brent oil to just below $50 as well. The 2010s oil glut—caused by multiple factors—spurred a sharp downward spiral in the price of oil that continued through February 2016.

By 3 February 2016 oil was below $30— a drop of "almost 75% since mid-2014 as competing producers pumped 1–2 million barrels of crude daily exceeding demand, just as China's economy hit lowest growth in a generation." According to 15 February 2016 report by Deloitte LLP—the audit and consulting firm—with global crude oil at near ten-year low prices, 35% of listed E&P oil and gas companies are at a high risk of bankruptcy worldwide. Bankruptcies "in the oil and gas industry could surpass levels seen in the Great Recession." In June 2018, OPEC reduced production. in response to concerns about constraints on global supply. The production capacity in Venezuela had decreased. United States sanctions against Iran, OPEC's third-biggest oil producer, were set to be restored and tightened in November.

The price of oil dropped in November 2018 because of a number of factors, including "rising petro-nations' oil production, the U.S. shale oil boom, and swelling North American oil inventories," according to Market Watch. barrel petroleum spot prices from May 1987 to 2016, in United States dollars (USD) The 1 November 2018 U.S. Energy Information Administration (EIA) report announced that the US had become the "leading crude oil producer in the world" when it hit a production level of 11.3 million barrels per day (bpd) in August 2018, mainly because of its shale oil production.

US exports of petroleum—crude oil and products—exceeded imports in September and October 2019, "for the first time on record, based on monthly values since 1973." —the biggest 30-day drop since 2008—factors included increased oil production in Russia, some OPEC countries and the United States, which deepened global over supply. In 2019 the average price of Brent crude oil in 2019 was $64, WTI crude oil was $57, price from January 2019 to June 2020. The crash started in mid-February 2020. On 8 March 2020, global oil prices fell precipitously when Saudi Arabia announced unexpected price cuts at the onset of the COVID-19 recession. In the face of cratering demand Russia responded in kind, resulting in a sudden price war.

The IHS Market reported that the "COVID-19 demand shock" represented a bigger contraction than that experienced during the Great Recession during the late 2000s and early 2010s. As demand for oil dropped to 4.5m million bpd below forecasts, tensions rose between OPEC members. The spot price of WTI benchmark crude oil on the NYM on 6 March 2020 dropped to US$42.10 per barrel. On 8 March, the 2020 Russia–Saudi Arabia oil price war was launched, in which Saudi Arabia and Russia briefly flooded the market, also contributed to the decline in global oil prices. Later on the same day, oil prices had decreased by 30%, representing the largest one-time drop since the 1991 Gulf War. Oil traded at about $30 a barrel. By April 2020 the price of WTI dropped by 80%, down to a low of about $5.

As the demand for fuel decreased globally with pandemic-related lockdowns preventing travel, and due to excessive demand for storage of the large surplus in production, the price for future delivery of US crude in May became negative on 20 April 2020, the first time to happen since the New York Mercantile Exchange began trading in 1983. In April, as the demand decreased, concerns about inadequate storage capacity resulted in oil firms "renting tankers to store the surplus supply". With the price of WTI at a record low, and 2019 Chinese 5% import tariff on U.S. oil lifted by China in May 2020, China began to import large quantities of US crude oil, reaching a record high of 867,000 bpd in July. In a January 2020 EIA report, the average price of Brent crude oil in 2019 was $64 per barrel compared to $71 per barrel in 2018.

The average price of WTI crude oil was $57 per barrel in 2019 compared to $64 in 2018. On 20 April 2020, WTI Crude futures contracts dropped below $0 for the first time in history, and the following day Brent Crude fell below $20 per barrel. The substantial decrease in the price of oil was caused by two main factors: the 2020 Russia–Saudi Arabia oil price war and the COVID-19 pandemic, which lowered demand for oil because of lockdowns around the world. In 2021, the record-high energy prices were driven by a global surge in demand as the world quit the economic recession caused by COVID-19, particularly due to strong energy demand in Asia. The ongoing 2019–2021 Persian Gulf crisis, which includes the use of drones to attack Saudi Arabia's oil infrastructure, has made the Gulf states aware of their vulnerability.

Former US President "Donald Trump's 'maximum pressure' campaign led Iran to sabotage oil tankers in the Persian Gulf and supply drones and missiles for a surprise strike on Saudi oil facilities in 2019." In January 2022, Yemen's Houthi rebels drone attacks destroyed oil tankers in Abu Dhabi prompting concerns about further increases in the price of oil. The oil prices were seen rising to hit $71.38 per barrel in March 2021, marking the highest since the beginning of the pandemic in January 2020. The oil price rise followed a missile drone attack on Saudi Arabia's Aramco oil facility by Yemen's Houthi rebels. The United States said it was committed to defending Saudi Arabia. On 5 October 2021, crude oil prices reached a multiyear high but retreated by 2% the following day.

The price of crude was on the rise since June 2021, after a statement by a top US diplomat that even with a nuclear deal with Iran, hundreds of economic sanctions would remain in place. Since September 2021, Europe's energy crisis has been worsening, driven by high crude prices and a scarcity of Russian gas on the continent. The high price of oil in late 2021, which resulted in US gasoline pump prices that rose by over $1 a gallon—a seven-year high—added pressure to the United States, which has extensive reserves of oil and has been one of the world's largest producers of oil since at least 2018. One of the major factors in the US refraining from increased oil production is related to "investor demands for higher financial returns".

Central banks were concerned that higher energy prices would contribute to a "wage-price spiral." The European Union (EU) embargo of Russian seaborne oil, in response to the Russian invasion of Ukraine in February, 2022, was one—but not the only—factor in the increase in the global price of oil, according to The Economist. When the EU added new restrictions to Russia's oil on May 30, there was a dramatic increase in the price of Brent crude to over $120 a barrel. Bloomberg described how the price of oil, gas and other commodities had risen driven by a global "resurgence in demand" as COVID-19 restrictions were eased, combined with supply chains problems, and "geopolitical tensions". In May 2024, Chuck Schumer, along with 22 other Democrats, urged the Department of Justice to take robust action against alleged collusion and price-fixing in the oil industry.

In a letter to Merrick Garland, the senators referenced a FTC investigation revealing price-fixing by oil executives, which had increased energy costs for Americans. The FTC found that Scott D. Sheffield, colluded with OPEC to raise crude oil prices. Although the FTC cleared Exxon Mobil's $60 billion acquisition of Pioneer, it barred Sheffield from joining the new company's board. The senators called for a comprehensive DOJ investigation into potential Sherman Antitrust Act violations, citing concerns over national security and economic burdens on lower-income families due to inflated fuel costs. On 10 October 2024, oil prices surged over 3% due to escalating tensions in the Middle East, raising concerns about potential disruptions to crude supplies. Brent crude reached $75.98 per barrel, and U.S. WTI climbed to $72.30.

Fears of retaliatory strikes on oil facilities and possible U.S. involvement grew, while OPEC+ ministers met without expected changes to production policies. On 13 January 2026, oil prices rose by over 2% due to potential disruptions to Iranian crude oil exports overshadowing increased supply from Venezuela. This came after President Donald Trump cancelled all meetings with Iranian officials and pledged support to protesters of anti-government demonstrations in Iran.

Oil-storage trade (contango)

(1979–2010, used for floating storage in 2004–2009), a ULCC supertanker compared to the longest ships ever built The oil-storage trade, also referred to as contango, a market strategy in which large, often vertically integrated oil companies purchase oil for immediate delivery and storage—when the price of oil is low— and hold it in storage until the price of oil increases. Investors bet on the future of oil prices through a financial instrument, oil futures in which they agree on a contract basis, to buy or sell oil at a set date in the future. Crude oil is stored in salt mines, tanks and oil tankers. But it was in 2007 through 2009 the oil storage trade expanded, with many participants—including Wall Street giants, such as Morgan Stanley, Goldman Sachs, and Citicorp—turning sizeable profits simply by sitting on tanks of oil.

By May 2007 Cushing's inventory fell by nearly 35% as the oil-storage trade heated up. From June 2014 to January 2015, as the price of oil dropped 60% and the supply of oil remained high, the world's largest traders in crude oil purchased at least 25 million barrels to store in supertankers to make a profit in the future when prices rise. Trafigura, Vitol, Gunvor, Koch, Shell and other major energy companies began to book oil storage supertankers for up to 12 months. By 13 January 2015 At least 11 Very Large Crude Carriers (VLCC) and Ultra Large Crude Carriers (ULCC)" have been reported as booked with storage options, rising from around five vessels at the end of last week. Each VLCC can hold 2 million barrels." In 2015 as global capacity for oil storage was out-paced by global oil production, and an oil glut occurred.

Crude oil storage space became a tradable commodity with CME Group— which owns NYMEX— offering oil-storage futures contracts in March 2015. By 5 March 2015, as oil production outpaces oil demand by 1.5 million bpd, storage capacity globally is dwindling. In 2020, rail and road tankers and decommissioned oil pipe lines are also being used to store crude oil for contango trade. For the WTI crude to be delivered in May 2020, the price had fallen to -$40 per bbl (i.e. buyers would be paid by the sellers for taking delivery of crude oil) due to lack of storage/expensive storage. LNG carriers and LNG tanks can also be used for long duration crude oil storage purpose since LNG can not be stored long term due to evaporation. Frac tanks are also used to store crude oil deviating from their normal use.

Comparative cost of production

In their May 2019 comparison of the "cost of supply curve update" in which the Norway-based Rystad Energy—an "independent energy research and consultancy"—ranked the "worlds total recoverable liquid resources by their breakeven price", they listed the "Middle East onshore market" as the "cheapest source of new oil volumes globally" with the "North American tight oil"—which includes onshore shale oil in the United States—in second place. The breakeven price for North American shale oil was US$68 a barrel in 2015, making it one of the most expensive to produce. By 2019, the "average Brent breakeven price for tight oil was about US$46 per barrel. The lowest average WTI breakeven price for tight oil in 2022-2024 was in the Permian Delaware basin at $48.50/Bbl followed by Williston at $54.00/Bbl and Permian Midland at $59.00/Bbl.

The breakeven price of oil from Saudi Arabia and other Middle Eastern countries was US$42, in comparison. In 2016, the Wall Street Journal reported that the United Kingdom, Brazil, Nigeria, Venezuela, and Canada had the costliest production. Saudi Arabia, Iran, and Iraq had the cheapest.

Future projections

Peak oil is the period when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline. It relates to a long-term decline in the available supply of petroleum. This, combined with increasing demand, will significantly increase the worldwide prices of petroleum-derived products. Most significant will be the availability and price of liquid fuel for transportation. Global annual crude oil production (including shale oil, oil sands, lease condensate and gas plant condensate but excluding liquid fuels from other sources such as natural gas liquids, biomass and derivatives of coal and natural gas) increased from in 2008 to per day in 2018 with a marginal annual growth rate of 1%.

Impact of rising oil price

The rising oil prices could negatively impact the world economy. One example of the negative impact on the world economy, is the effect on the supply and demand. High oil prices indirectly increase the cost of producing many products thus causing increased prices to the consumer. Since supplies of petroleum and natural gas are essential to modern agriculture techniques, a fall in global oil supplies could cause spiking food prices in the coming decades. One reason for the increase in food prices in 2007–08 may be the increase in oil prices during the same period. Bloomberg warned that the world economy, which was already experiencing an inflationary "shock", would worsen with oil priced at $100 in February 2022.

The International Monetary Fund (IMF) described how a combination of the "soaring" price of commodities, imbalances in supply and demand, followed by pressures related to the Russian invasion of Ukraine, resulted in monetary policies being tightened by central banks, as some inflation in some countries broke 40-year-old record highs. The IMF also cautioned that there was a potential for social unrest in poorer nations as the price of food and fuel increases.

Impact of declining oil price

A major rise or decline in oil price can have both economic and political impacts. The decline on oil price during 1985–1986 is considered to have contributed to the fall of the Soviet Union. Low oil prices could alleviate some of the negative effects associated with the resource curse, such as authoritarian rule and gender inequality. Lower oil prices could however also lead to domestic turmoil and diversionary war. The reduction in food prices that follows lower oil prices could have positive impacts on violence globally. Research shows that declining oil prices make oil-rich states less bellicose. Low oil prices could also make oil-rich states engage more in international cooperation, as they become more dependent on foreign investments.

The influence of the United States reportedly increases as oil prices decline, at least judging by the fact that "both oil importers and exporters vote more often with the United States in the United Nations General Assembly" during oil slumps. However, in recent countries like Japan, the decrease in oil prices may cause deflation and it shows that consumers are not willing to spend even though the prices of goods are decreasing yearly, which indirectly increases the real debt burden. It is estimated that 17–18% of S&P would decline with declining oil prices. It has also been argued that the collapse in oil prices in 2015 should be very beneficial for developed western economies, who are generally oil importers and aren't over exposed to declining demand from China.

In the Asia-Pacific region, exports and economic growth were at significant risk across economies reliant on commodity exports as an engine of growth. The most vulnerable economies were those with a high dependence on fuel and mineral exports to China, such as: Korea DPR, Mongolia and Turkmenistan—where primary commodity exports account for 59–99% of total exports and more than 50% of total exports are destined to China. The decline in China's demand for commodities also adversely affected the growth of exports and GDP of large commodity-exporting economies such as Australia (minerals) and the Russian Federation (fuel).

On the other hand, lower commodity prices led to an improvement in the trade balance—through lower the cost of raw materials and fuels—across commodity importing economies, particularly Cambodia, Kyrgyzstan, Nepal and other remote island nations (Kiribati, Maldives, Micronesia (F.S), Samoa, Tonga, and Tuvalu) which are highly dependent on fuel and agricultural imports. The oil importing economies like EU, Japan, China or India would benefit, however the oil producing countries would lose. A Bloomberg article presents results of an analysis by Oxford Economics on the GDP growth of countries as a result of a drop from $84 to $40. It shows the GDP increase between 0.5% to 1.0% for India, USA and China, and a decline of greater than 3.5% from Saudi Arabia and Russia. A stable price of $60 would add 0.5 percentage point to global gross domestic product.

Katina Stefanova has argued that falling oil prices do not imply a recession and a decline in stock prices. Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, had earlier written that that positive impact on consumers and businesses outside of the energy sector, which is a larger portion of the US economy will outweigh the negatives. While President Trump said in 2018, that the lower price of oil was like a "big Tax Cut for America and the World", The Economist said that rising oil prices had a negative impact on oil-importing countries in terms of international trade. Import prices rise in relation to their exports. The importing country's current account deficits widen because "their exports pay for fewer imports".

Speculative trading and crude oil futures

In the wake of the 1970s oil crisis, speculative trading in crude oil and crude oil futures in the commodity markets emerged. Some of the big multinational oil companies actively participate in crude oil trading applying their market perception to make profit.

Speculation during the 2008 financial crisis

According to a U.S. Commodity Futures Trading Commission (CFTC) 29 May 2008 report the "Multiple Energy Market Initiatives" was launched in partnership with the United Kingdom Financial Services Authority and ICE Futures Europe in order to expand surveillance and information sharing of various futures contracts. Part 1 is "Expanded International Surveillance Information for Crude Oil Trading." The report found that the primary reason for the price increases was that the world economy had expanded at its fastest pace in decades, resulting in substantial increases in the demand for oil, while the oil production grew sluggishly, compounded by production shortfalls in oil-exporting countries.

The report stated that as a result of the imbalance and low price elasticity, very large price increases occurred as the market attempted to balance scarce supply against growing demand, particularly from 2005 to 2008. The report forecast that this imbalance would persist in the future, leading to continued upward pressure on oil prices, and that large or rapid movements in oil prices are likely to occur even in the absence of activity by speculators.

Hedging using oil derivatives

The use of hedging using commodity derivatives as a risk management tool on price exposure to liquidity and earnings, has been long established in North America. Chief Financial Officers (CFOS) use derivatives to dampen, remove or mitigate price uncertainty. Bankers also use hedge funds to more "safely increase leverage to smaller oil and gas companies." "funding for upstream oil industry is shrinking and hedges are unwinding." To finance exploration and production of the unconventional oil industry in the United States, "hundreds of billions of dollars of capital came from non-bank participants non-bank buyers of bank energy credits in leveraged loans that were thought at the time to be low risk. However, with the oil glut that continued into 2016, about a third of oil companies are facing bankruptcy.

While investors were aware that there was a risk that the operator might declare bankruptcy, they felt protected because "they had come in at the 'bank' level, where there was a senior claim on the assets and they could get their capital returned." According to a 2012 article in Oil and Gas Financial Journal, "the combination of the development of large resource plays in the US and the emergence of business models designed to ensure consistent dividend payouts to investors has led to the development of more aggressive hedging policies in companies and less restrictive covenants in bank loans."

Institutional investors divesting from oil industry

At the fifth annual World Pensions Forum in 2015, Jeffrey Sachs advised institutional investors to divest from carbon-reliant oil industry firms in their pension fund's portfolio.

External links

* Oil price data, Federal Reserve Economic Data * Gasoline and diesel fuel prices in Europe * CME (formerly NYMEX) future prices for light sweet crude, Session Overview. * NYMEX:BZ is the most commonly quoted price for Brent crude oil * * Energy Futures Databrowser Current and historical charts of NYMEX energy futures chains. * Live oil prices NYMEX Crude oil price chart * U.S. Energy Information Administration Part of the U.S. Department of Energy, official source of price and other statistical information ** ** * *

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