THE CRUDE OIL MARKET

Over the past six months, crude oil prices have been especially volatile, although the general trend has been upward over this period. Over a two-year period, however, crude oil prices have also been vulnerable, although the London price for Brent crude 30-day futures in April 2003 ($24.08/b) was actually lower than it was in March 2001 ($25.84/b). Over this two-year period, expectations of changes in crude oil supply more so than expectations related to demand or actual supply and demand conditions appear to be the driver for volatility in crude oil prices (Schwartz, 2003; "World Oil Prices Carry $4.8/b War Premium", 2002).

This research analyses the price behavior of crude oil prices. A primary focus of this analysis is on the nine-month period from September 2002 through April 2003. To fully understand the behavior of crude oil prices in this period, however, it is also necessary to consider crude oil price behavior for the 25-month period from March 2001 through April 2003.

In the analysis of crude oil price behavior, the primary focus is on Brent crude oil 30-day futures. Considered in the analysis also, however, is the price behavior of West Texas Intermediate crude oil 30-day futures, as West Texas Intermediate prices frequently influence Brent prices (Williams, 2003).

Table 1 (on the following page) presents data reflecting Brent crude oil 30-day futures price behavior and the West Texas I

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Jan 03 $30.61 $32.90 Concern about war & Venezuela 20 Jan 03 $30.54 $33.91 Concern about war & Venezuela 2 Feb 03 $29.46 $32.71 Improved SPR inventory 6 Feb 03 $32.34 $35.12 Concern about war & weather 18 Feb 03 $33.10 $35.51 Good report by Weapons Inspectors 19 Feb 03 $32.33 $37.16 Decrease in SPR inventory 10 Mar 03 $33.69 $36.27 Lull in war concerns 17 Mar 03 $31.57 $34.93 Increase in SPR inventory 6 Apr03 $24.08 $26.64 No widespread destruction of Iraq oil fields Sources: 1; 2; 3; 4; 5; 6; 7; 8; 9; 10; 12; 13; 15; 16; 17 The price behavior of Brent crude oil 30-day futures is illustrated graphically in Chart 1, which may be found on the following page. The price behavior of West Texas Intermediate crude oil 30-day futures is illustrated graphically in Chart 1, below on this page.

In each case [Brent crude oil and West Texas Intermediate crude oil], the price behavior was more volatile in the first four-months of 2003 than it was over the remaining 21 months of the 25-month period analyzed from March 2001 through April 2003. Within the context of microeconomic the
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Approximate Word count = 1285
Approximate Pages = 5 (250 words per page)

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