While the world focuses on human loss and economic damage from the global outbreak of Covid-19, there is another statistic that has captured the attention of oil markets—the price of crude. Oil is often called the lifeblood of an economy, and fluctuations in the supply can have a significant impact.
The price of crude can move up or down for a variety of reasons, including production levels set by major producers like the Organization of Petroleum Exporting Countries (OPEC) and weather-related events such as hurricanes and floods that can disrupt oil transport systems. Demand can also vary, with periods of slow growth or sluggish economic activity decreasing the need for energy, and periods of rapid growth increasing it.
Unlike shocks to flow supply and flow demand, speculative demand shocks—defined as any demand shock that reflects forward-looking behavior by speculators—have had large immediate effects on the real price of crude. These have been responsible for many long swings in oil prices since 1973, notably in 1979 following the Iranian Revolution, 1997-2000 during the Asian crisis and 2008 during the financial crisis.
The price of crude has been especially volatile over the past few years as a result of shifting global oil supply and demand conditions, including the OPEC decision to increase and decrease production, the slowdown in China and other emerging economies and technological innovations that affect production costs. To understand what drives these shifts, the Maurice R. Greenberg Center for Geoeconomic Studies convened a workshop of experts to explore the key factors that influence oil price fluctuation and what policy options exist to reduce it. This article summarizes the findings of that workshop.
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