Since the end of the summer, oil price volatility has increased significantly. This is demonstrated by the frequency with which large daily price changes have occurred to an extent that has not been seen since the start of the war in Ukraine. The share of trading days in each month since the beginning of 2021 that saw oil price changes larger than 3% in absolute terms.
The price of West Texas Intermediate (WTI) oil has nevertheless remained within the broad trading range of USD65 to USD95 per barrel (pb) that has prevailed since the end of 2022. Moreover, in the most recent period the price has slipped towards the lower end of the range.
This is surprising in light of tensions in the Middle East, the continuation of OPEC+ production cuts, and the fact that the hurricane season in the US is still very intense. Furthermore, it suggests that prospects for the oil market are highly uncertain.
To assess the outlook for oil, it is useful to consider which factors will likely influence oil supply and demand in the future. Some of them, such as the hurricane season, are relevant mainly in the short term; others, such as progress on the energy transition, will have an increasing impact in the medium and long term. Furthermore, these factors often influence each other: for example, the outcome of the US election will also have an impact on geopolitical tensions, but these geopolitical tensions also play a role in determining who will be the next US President.
Here we present the main factors relevant to the oil market and assess how they could affect prices in different scenarios.
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