General · EdgepediaSeptember 17, 20268 min read

Price of oil

The price of oil is the market price of crude oil, quoted in U.S. dollars per barrel and set in a globally integrated market in which prices of the many crude oil streams produced around the world tend to move closely together, with persistent differentials between light, low-sulfur (light-sweet) grades and heavier, higher-sulfur (heavy-sour) crudes of lower quality¹. Because oil is traded worldwide, prices for different types of crude move together, and the price of petroleum products such as gasoline is mainly driven by crude oil prices¹.

Key fact	Detail
Principal benchmarks	Brent, West Texas Intermediate (WTI), and Dubai/Oman; other crudes are priced at an agreed differential to them²
Brent scale	In 2013, Brent loadings averaged 0.86 million barrels per day, about 1% of total world crude production of 76 million bbl/d²
WTI futures contract	Ticker CL, 1,000 barrels, physically delivered at Cushing, Oklahoma; minimum tick one cent ($10.00 per contract); more than 1 million contracts traded daily³
OPEC weight	OPEC countries produce about 35% of world crude oil, and OPEC exports account for around 50% of internationally traded oil⁴
Non-OPEC weight	In 2024, countries outside OPEC accounted for 65% of global crude oil production⁵
Emergency stocks	IEA member countries, including the United States, collectively hold about 1.6 billion barrels of publicly owned petroleum stocks for emergency response⁶
Extreme episode	On April 20, 2020, the WTI front-month futures contract traded below zero for the first time since trading began in 1983, as low as -$40.32/b⁷

Benchmarks

When analysts and the media discuss the price of crude oil, they typically refer to one of a small group of benchmark crudes that are widely and actively bought and sold. Three of the most significant are Brent, West Texas Intermediate, and Dubai/Oman².

Brent is the most widely used global benchmark. It comprises four light, sweet crude streams produced in the North Sea: Brent and Forties offshore the United Kingdom, and Ekofisk and Oseberg offshore Norway. It is used to price light, sweet crude produced and traded in Europe, the Mediterranean, Africa, Australia, and parts of Asia².

WTI is a light, sweet U.S. crude priced at the trading hub of Cushing, Oklahoma. It benchmarks other U.S. crudes such as Mars (a medium, sour Gulf of Mexico crude) and Bakken (a light, sweet North Dakota crude), as well as imported crude from Canada, Mexico, and South America². Its futures contract on the New York Mercantile Exchange (NYMEX), ticker CL, is the most actively traded crude oil futures contract, with more than 1 million contracts traded every day³.

Dubai/Oman averages the prices of two medium, sour crudes and is typically used to price Middle East crude exported to Asian markets; Saudi Aramco uses it when setting the price of crude sold for delivery to Asia².

Other crude grades are valued relative to these benchmarks using a mutually agreed differential that accounts for such quality traits as API gravity (density) and sulfur content, the cost of moving the oil from where it is produced to refineries, and supply-and-demand factors at both regional and global levels, including how fully refineries are being used². Delivery location matters: WTI usually sells at lower prices relative to Brent because it is priced at landlocked Cushing, and buyers must pay to transport the crude to a coastal location for export⁸.

Physical drivers

The volatility of oil prices is tied to the low responsiveness, or inelasticity, of both supply and demand to price changes in the short run. Oil production capacity and the equipment that consumes petroleum products are relatively fixed in the near term: it takes years to develop new supply sources, and consumers cannot quickly switch fuels or improve fuel efficiency when prices rise. Under these conditions, a large price change can be necessary to rebalance physical supply and demand after a shock¹.

Supply. Non-OPEC producers, which accounted for 65% of global crude production in 2024, usually operate as price takers and produce at or near full capacity, leaving limited spare capacity. Lower non-OPEC supply raises the "call on OPEC", the amount of crude the world needs OPEC to supply, and the greater that call, the more influence OPEC has on prices⁵. OPEC, by contrast, actively manages production by setting targets for member countries; historically, oil prices tend to increase when OPEC reduces those targets⁴. OPEC members collectively hold almost all of the world's spare production capacity, defined by EIA as production that can be brought online within 30 days and sustained for at least 90 days. High spare capacity dampens price volatility, while low spare capacity leads prices to incorporate a rising risk premium⁴.

Disruption risk. Much of the world's crude oil is located in regions historically prone to political upheaval. Major price shocks have coincided with politically triggered supply disruptions, most notably the Arab Oil Embargo of 1973-74, the Iranian revolution and Iran-Iraq war in the late 1970s and early 1980s, and the Persian Gulf War in 1990¹. Market participants continually assess the possibility of future disruptions, weighing their size and duration against available crude stocks and other producers' ability to offset a loss; when spare capacity and inventories look insufficient, forward-looking behavior adds a risk premium above what current supply and demand alone would imply¹. Weather matters too: the 2005 hurricanes shut down oil and natural gas production and refineries, and refinery outages or pipeline problems can restrict flows and drive prices up, though the influence of such factors is usually short lived once flows return to normal¹.

Demand. Oil consumption in OECD countries fell from 2000 to 2024, while consumption in non-OECD countries doubled over the same period, driven by rapid economic growth, expanding transport and manufacturing, and rising vehicle ownership. Because many developing countries subsidize or control end-use prices, consumer responsiveness to price changes is reduced, making economic growth a key driver of non-OECD demand and, in turn, global oil prices⁹.

Inventories and futures markets

Petroleum inventories, stored volumes of crude oil and refined products at refineries, terminals, pipelines, and on floating storage, act as the balancing point between supply and demand. When production exceeds consumption, oil is stored; when consumption outstrips production, inventories are drawn down. The relationship works through prices in both directions: if futures prices rise relative to the current spot level, incentives to store oil strengthen, while rising storage signals that production surpasses consumption and spot prices tend to drop to rebalance the market⁶.

Futures markets also transmit expectations into current prices. If crude futures suddenly rise, producers may accelerate production and buyers may stock up, changing current supply and demand and thereby spot prices. Non-commercial investors such as investment banks, hedge funds, and asset managers trade oil futures and options without handling physical oil, providing liquidity; when their positions are large enough, price movements can temporarily diverge from signals rooted in market fundamentals. Open interest in NYMEX crude oil futures has increased significantly since 2000, reflecting the financialization of the oil market¹⁰.

From crude to the pump

In the United States, the retail price of gasoline has four components: the cost of crude oil, taxes, refining costs and profits, and distribution and marketing. Crude oil is the largest component, and its share varies over time and by region; in recent monthly data it has run near half of the pump price¹¹^•¹². Because gasoline taxes and retail distribution costs are relatively stable, changes in gasoline prices are primarily the result of changes in crude oil prices and refining costs¹³. The federal tax on motor gasoline is 18.40 cents per gallon, and state taxes and fees averaged 33.55 cents per gallon as of January 2026¹¹.

Notable episodes

Negative prices, April 2020. As COVID-19 demand collapse and rising inventories filled storage, the WTI front-month futures contract traded below zero on April 20, 2020, the first time since trading began in 1983, reaching -$40.32/b intraday and closing at -$37.63/b. Holders of contracts through expiration must take physical delivery at Cushing, and the scarcity and high cost of available storage there led some participants to pay counterparties to take the contracts off their hands. Between March 13 and May 1, 2020, commercial inventories at Cushing rose by 27 million barrels to 83% of the hub's working storage capacity⁷^•¹⁴.

Middle East conflict, 2026. Disruptions to Gulf exports pushed benchmark prices sharply higher: North Sea Dated crude collapsed by more than $40/bbl to around $82/bbl during May through mid-June 2026 as demand faltered and speculation built around a U.S.-Iran peace deal¹⁵. Flows through the Strait of Hormuz averaged 7.6 mb/d in August 2026, 13.1 mb/d below pre-war levels, while bypass routes through Yanbu and Fujairah offset more than 500 mb of losses, producers outside the Gulf added 2.3 mb/d of supply, and global demand fell; even so, global oil inventories drew at record rates of 2.8 mb/d over six months, and the IEA assessed that higher prices and further demand reductions might be required to close the supply-demand gap if Gulf supplies remained constrained¹⁶.

References

Initially written Sep 17, 2026 · Reviewed: Oct 15, 2026 · Edited: Oct 15, 2026