Supply Side: OPEC+ and Production Decisions
OPEC+ (Saudi Arabia, Russia, and allies) controls roughly 40% of global supply. When OPEC+ cuts quotas, supply falls and prices rise; quota increases have the opposite effect.
US shale oil has been a major supply variable since 2010. US production hit a record 13 million barrels per day in 2023, partially offsetting OPEC's pricing power.
Demand Side: Economic Growth and China
Global economic activity is the primary demand driver. China is the world's largest oil importer; any slowdown in Chinese growth puts downward pressure on prices.
Travel, shipping, and manufacturing directly consume oil. The COVID-19 demand collapse drove WTI to -$37 in April 2020 — the first time in history oil futures traded negative.
Geopolitical Risks and the Dollar
Middle East tensions (Gulf wars, Iran sanctions, attacks on Saudi infrastructure) add a "geopolitical risk premium" that can spike prices suddenly.
Oil is priced in dollars. When the dollar strengthens, oil becomes more expensive for non-dollar buyers, suppressing demand and pressuring prices. There is historically a negative correlation between DXY and oil.