Oil Overview: Cartels, price wars and COVID-19

Crude oil is a raw commodity that is refined to produce usable products such as petrol, diesel, and other petrochemicals. The two major crude oil benchmarks, referred to by market participants, are Brent Crude and WTI (West Texas Intermediate). These represent different types of crude oil based on geography and quality, with Brent referring to oil produced in the North Sea, and WTI being produced in the US. Oil is a global market and these two benchmarks are relatively interchangeable which means that they tend to trade with a narrow spread.

Oil prices are a key indicator for the state of the global economy. Economic productivity, both in the production of goods and transport activity (air, road and sea), leads to growing demand for oil and therefore higher prices. When demand drops during recessions, oil prices tend to follow.

Figure 1 illustrates the key demand-related events, over the 15 years, that have impacted oil prices.

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