Crude oil prices behave much as any other commodity with wide price swings in times of shortage or oversupply. The crude oil price cycle may extend over several years responding to changes in demand as well as OPEC and non-OPEC supply. Crude oil is the most actively traded energy commodity on the NYMEX, thus often it sets the “tone”/direction for related products such as heating oil and gasoline, as well as non-related energy commodities, such as natural gas.
A form of market analysis that studies demand and supply based on trading volume and price studies. Using charts and modeling techniques, technicians attempt to identify price trends in the market. Two terms often used in technical analysis are support and resistance. Technical support is where the buying of futures contracts is sufficient to halt a price decline. Technical resistance is where the selling of futures contract is sufficient to halt a price increase.
High inventory levels depress prices. Inventories fall in response to higher sales, consistent with production smoothing. Under higher input prices, refiners/producers reduce their stocks but increase their product inventories, consistent with cost smoothing. Source: Energy Economics
The Rotary Rig Count is the average number of drilling rigs actively exploring for oil and gas. Drilling an oil or gas well is a capital investment in the expectation of returns from the production and sale of crude oil or natural gas. Rig count is one of the primary measures of the health of the exploration segment of the oil and gas industry. In a very real sense it is a measure of the oil and gas industry’s confidence in its own future. Source: WTRG Economics
Ratio of the total amount of crude oil, unfinished oils, and natural gas plant liquids run through crude oil distillation units to the operable capacity of these units. Source: Teachmefinance.com
Hot temps cause electric demand due to higher air-conditioning loads. Cold temps increase housing-heat demand. Energy production can be in the destructive path of hurricanes, thus limiting production for periods of time.
We have entered an era where our energy security environment is fundamentally shifting. Transit pathways will become more important, oil resources will increasingly be produced or transiting through unpredictable regions, and supplies will continue to tighten as these non-renewable resources are stressed due to mounting global demand. Add to this list the emerging difficulties in finding new conventional oil, resulting in progressively expensive exploration activities, for instance deep sea drilling off the coast of Angola. Fatih Birol, Chief Economist at the International Energy Agency (IEA), also recently noted that, “Many governments appeared oblivious to the fact that the oil on which modern civilization depends is running out far faster than previously predicted and that global production is likely to peak in about 10 years.” For the moment, the current economic crisis has eased supply pressures leading to much lower, yet extremely volatile, crude oil prices from the August 2008 peak of US $147 per barrel when gasoline prices surpassed US $4 a gallon. Source: Crisis Risk Network at the Center for Security Studies
Financial players seem more willing to “look through” temporary supply-demand dislocations to focus on the medium-term horizon (2-5 years out), using oil as an asset for positioning on the outlook for global growth, inflation and currency movements, as well as the prospects for supply meeting long-term demand projections (Source: Commodities Now/Reuters). Often, these macro-economics (e.g. equities, U.S. Dollar Index) “trump” the more traditional supply-demand factors in setting near-term price direction.