In addition to keeping us informed of key events occurring all over the world, news media continues to have a growing impact on oil market dynamics. Whether it’s an announcement from OPEC about changing production, news of an approaching weather event, or even a tweet from a global political power, oil price movement is increasingly tied to the release of new information—in both its traditional and non-traditional forms.
Much of this price movement can be attributed to how quickly market sentiment now responds to new developments. Thanks to the real-time nature of digital news, oil industry decision-makers, futures market traders, and any number of other key players can watch as global events unfold, prompting immediate reaction as each party anticipates how new information will affect their specific position within the oil market ecosystem.
“Oil Prices Fall as US Braces for Hurricane Harvey”
One example of how oil prices are driven by real-time news updates involves market response during inclement weather events. In August of 2017, as Hurricane Harvey approached Texas, news of the strengthening storm caused a 2 percent drop in US oil prices between August 21 when the storm’s path was first announced, and August 25 when it finally made landfall.
This price movement was largely attributed to breaking news-driven speculation of reduced crude oil demand throughout the gulf, increasing anticipation that refinery operations would close for safety reasons in the days before the storm, and causing traders to subsequently sell off oil futures contracts.
Like oil, refined products such as diesel and gasoline also often experience price premiums due to environmental news headlines. A projected storm path that includes oil refineries or products storage terminals can spike prices based on worries of supply disruption. With Hurricane Harvey, what started with regional diesel distortions in the Gulf Coast, ultimately led to national price surges when flooding in the Houston area took nearly one third of total US refinery output offline.
Such speculation regarding oil and refined product price movement also frequently depends on the level of prior expectation surrounding news developments. Markets, oil or otherwise, tend to build future expectations into price projections. Because of this, unexpected events or announcements often prompt a greater degree of market volatility, as traders adjust their assets in response to a development they had not previously accounted for.
“OPEC and Allies Announce Production Deal”
Recent evidence of the effect of unexpected news on oil markets can be found in the Organization of Petroleum Exporting Countries’ (OPEC) recent announcement that they will be removing nearly 1.2 million barrels of crude oil from global supply per day.
Only one day prior, a representative from OPEC member Saudi Arabia shed doubt on the probability of this outcome, stating that he was “not confident” a deal could be reached. In response, oil prices dropped 4 percent, reaching less than $60 per barrel, as traders built this predicted continuation of the current production environment into their prices.
However, this downward price movement was short-lived, as the next day OPEC—along with Russia and other allies—instead firmly agreed to reduce global oil supply. With a goal of raising oil prices on the heels of the dramatic downward movement oil prices experienced in recent months, the decision prompted a price spike immediately after the announcement was made. That same day, Brent oil prices climbed 2.7 percent to $61.60 a barrel. The influence of digital media in particular was on full display, as traditional news publications incorrectly touted the doubt of an OPEC accord.
While the market is made volatile by myriad dynamics related to supply and demand, unexpected media releases and announcements by global organizations can rapidly affect market sentiment, leading to price decreases one day, and increases the next. While these fluctuations can be expected, the duration of impact, however, also varies.
“Oil prices should be much lower based on supply!”
While many factors influence the price of oil in the long-term, a more recent key driver of short-term price movement in the oil industry has arisen from, of all places, social media.
More than ever before, political leaders and organizations are taking to social media platforms to articulate everything from public policy to international agreements. Throughout 2018, US President Donald Trump utilized Twitter to discuss his goals for oil prices in the United States, often in response to decisions OPEC and other international oil powers had made impacting overall oil market movement.
For example, a tweet in early November by President Trump urging Saudi Arabia and other OPEC members to forego a substantial production cut preceded a near immediate price drop for global crude oil, with Brent prices ending the day reduced by more than 6.6 percent. In the tweet, the President stated that “oil prices should be much lower,” adding to the momentum of the already bearish downward price movement the oil industry witnessed throughout the month.
While President Trump’s November tweets added to an already downward-moving oil marketplace, previous tweets had been more fleeting in the scope of their impact. On September 20, the President took to Twitter to call out OPEC for continuing to “push for higher and higher oil prices.” While this caused a small dip in oil prices throughout the day, the larger trend toward upward oil price movement continued, reaching four-year highs a few weeks later. This also demonstrates how the impact of news via social media is largely context-driven, whether it results in long-term price movement, or simply an ephemeral change in market price.
Whether it’s simple industry white noise, or breaking news with dramatic implications for the global fuel marketplace, the Breakthrough team is dedicated to monitoring news events as they happen, filtering information to determine what news will impact the cost, consumption, and emissions in your organization’s network. Combining industry expertise with the power of data, we create solutions for our clients allowing them to understand market price dynamics, and use that knowledge to create a strategy that works in their specific network.
To see how other news is shaping your transportation energy network, check out some of our other industry insights.