Oil runs the world economy: it fuels transport, heats homes, and is the feedstock for plastics and fertiliser. That makes crude oil the single most important commodity, and one of the most volatile.
The two benchmarks
You’ll see two prices quoted constantly:
- Brent — the global benchmark, priced from North Sea crude.
- WTI (West Texas Intermediate) — the US benchmark.
They usually track each other within a few dollars; the gap (the “spread”) reflects regional supply, quality, and transport.
What moves the price
Oil is a textbook supply-and-demand commodity, but both sides are jumpy:
- Supply shocks. Wars, sanctions, hurricanes, and pipeline outages can yank barrels off the market overnight. The US shale boom did the opposite, flooding supply.
- OPEC and OPEC+. A cartel of major producers coordinates output. When they cut production, supply tightens and prices tend to rise; when they open the taps, prices fall.
- Demand and the economy. Oil demand tracks global growth. A recession crushes it; a boom strains it.
- Inelasticity. In the short run people can’t easily use less oil or pump more, so small imbalances cause big price swings.
Case study: oil goes negative (April 2020)
When COVID lockdowns collapsed demand, the world ran out of places to store the glut. On 20 April 2020, the expiring WTI futures contract did something never seen before: it traded below zero, settling around −$37/barrel.
Why negative? Holders of the expiring contract were obligated to take physical delivery of oil they had nowhere to put — so they paid others to take the contracts off their hands. It was a vivid lesson in two things: storage is a real, binding constraint, and a futures price is about delivery logistics, not just the value of the stuff.
The takeaway
Crude oil is the economy’s master commodity — priced off Brent and WTI, driven by supply shocks, OPEC decisions, and the strength of global demand. Because supply and demand both respond slowly, prices swing violently, and (as 2020 showed) the plumbing of storage and delivery can matter as much as the oil itself.
This is education, not financial advice.