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Markets & Instruments

What Moves the Oil Price

Five hands move the oil price: what is pumped, what is burnt, what sits in the tanks, the dollar it is priced in, and sudden events, and the first three are one machine whose level is counted every week. This paper shows you the five in five lines; the idea as a bath with two taps and a drain; the weekly inventory row as it appears on the calendar, Wednesday 10:30 in New York; the curve of delivery months with example figures and what its slope means; and the rows on your platform under which oil's movers are found.

Difficulty
Beginner
Reading time
5 min
Pages
8
Reviewed by
Saman Rahbar

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What moves oil, in five lines

Supply is how much is pumped, with OPEC and its partners deciding their share by agreement and everyone else pumping what pays. Demand is how much is burnt, by factories, cars, planes and heating, and it follows the world's growth. Inventories are what sits in the tanks, counted every week, and the count moves the price the minute it prints. The dollar: oil is priced in dollars, so a cheaper dollar is a bigger number for the same barrel. Events: a war near a pipeline, a hurricane in the Gulf, a shut strait, which is supply changing suddenly. The first three are one machine, and the last two push on it from outside.

A bath with two taps

Picture a bath with two taps and a drain. One tap is OPEC and its partners, turned by agreement; the other is everyone else, turned by what pays. The drain is demand, the oil burnt every day. The water is the stock in the tanks, and the price is read off the level, the other way up: when the taps run faster than the drain the bath fills and the price reads lower, and when they run slower it empties and the price reads higher. The dollar changes the ruler the level is read on, and events are a hand on a tap.

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