What sets the price of oil? Brent, WTI and OPEC+

Crude oil trades worldwide, and two benchmarks dominate: Brent, based on North Sea crude and widely used internationally, and West Texas Intermediate (WTI), the main US benchmark, delivered at Cushing, Oklahoma. Both are quoted in US dollars a barrel and trade as futures. The US Energy Information Administration (EIA) groups the forces behind the price into supply from OPEC and from non-OPEC producers, demand in developed (OECD) and developing (non-OECD) economies, the balance between them seen in inventories, spot markets, and financial markets.

Futures can behave oddly when storage runs short. On April 20, 2020, with demand collapsing and the storage hub at Cushing filling up, the expiring WTI futures contract closed at −$37.63 a barrel, the first negative price since the contract began trading in 1983. EIA found the effect was mostly confined to financial markets, but it shows why anyone using oil futures or oil funds needs to understand contract expiry; see futures rollover.

Brent crude
A benchmark price for crude oil based on North Sea production and widely used in international trade. It is quoted in US dollars a barrel.
West Texas Intermediate (WTI)
The main US crude oil benchmark, with futures delivered at Cushing, Oklahoma. It usually moves closely with Brent, at a price gap that changes over time.
OPEC+
The members of the Organization of the Petroleum Exporting Countries, including Saudi Arabia, together with allied producers such as Russia. They coordinate production targets, which can move the oil price.

Who wins and who loses when oil prices rise?

The same move splits the market. In the drawing at the top of the page, crude rises from $80 to $100 a barrel, +25%. A hypothetical producer with costs of $60 a barrel sees its profit per barrel go from $20 to $40, +100%: because its costs stay put, profit moves much more than the oil price. A hypothetical airline with revenue of $1,000 million, a fuel bill of $240 million and other costs of $680 million sees fuel rise 25% to $300 million and profit fall from $80 million to $20 million, −75%.

Real companies soften these effects: producers sell some output in advance and face rising costs too, while airlines hedge fuel and raise fares where they can. The pattern still shows up in results. EIA noted that in 2014 fuel and labor were almost equal shares of US airlines’ operating costs, and that when jet fuel prices fell in 2015, fuel costs dropped sharply and net profits rose. Tendencies commonly described, each with exceptions:

  • Oil and gas producers and oilfield service companies tend to benefit from higher oil, because it is their revenue.
  • Refiners are a separate case: their profit depends on the gap between what they pay for crude and what they get for fuel, not on the oil price itself.
  • Airlines, shipping and trucking companies tend to suffer, because fuel is one of their largest costs.
  • Companies that sell to consumers can feel it indirectly, as households spend more on fuel and less elsewhere.
  • Countries split the same way: oil exporters such as Saudi Arabia tend to gain from higher prices, while importers pay more.
Fuel hedging
Buying contracts that fix the future price of fuel, so that a company’s costs move less when oil moves. A hedge reduces surprises in both directions: it also limits the benefit when oil falls.

How do oil prices affect inflation and consumers?

Crude is the largest part of what drivers pay at the pump. EIA estimates that crude oil made up about half of the average US retail price of regular gasoline over 2016–2025; refining, distribution and marketing, and taxes made up the rest. Energy is part of the Consumer Price Index, so a sustained rise in oil lifts headline inflation quickly, while core inflation, which leaves out food and energy, feels it later and indirectly; see inflation and stocks.

The drawing below simplifies the pass-through. A gallon costs a hypothetical $3.20, half of it crude. If crude rises 25%, the crude part goes from $1.60 to $2.00 and, with the other $1.60 unchanged, the pump price rises to $3.60, +12.5%. A household buying 50 gallons a month pays $180 instead of $160, leaving $20 a month less for everything else. Across millions of households, that is why oil spikes can weigh on retailers and restaurants, and why central banks watch energy prices.

The US is now a net exporter: in 2020 it became a net exporter of petroleum for the first time since at least 1949, according to EIA. That softens the national hit from higher prices, because US producers earn more, but the gains and the costs land on different people and different stocks.

Pass-through
How much of a change in a cost, such as crude oil, shows up in the final price customers pay. With crude about half of the pump price, a 25% rise in crude adds roughly 12.5% if nothing else changes.

Turn your phone sideways to read the image. Tap to close.

A gallon of gasoline, simplified: crude is half the price. Two stacked bars. Before: crude oil $1.60 in yellow plus refining, transport and taxes $1.60, total $3.20. After: crude oil $2.00 in red plus $1.60, total $3.60. A card reads a household buying 50 gallons a month: $160 → $180, +$20 · +12.5%. A note reads hypothetical: crude +25% → pump +12.5% if the other half stays the same.

Why does the cause of an oil move matter for stocks?

Rising oil is not automatically bad for stocks. Economists Lutz Kilian and Cheolbeom Park (2009) separated oil price changes by cause and found that US stock returns react very differently. When oil rises because global demand for industrial commodities is booming, oil and stocks have tended to rise together: the growth that lifts oil also lifts profits. When oil rises because of demand specific to the oil market, such as precautionary buying on fears about future supply, stocks have tended to fall. Shocks to oil production mattered far less for stock prices in their study, and all these oil shocks together explained 22% of the long-run variation in US real stock returns.

That is why the reason behind a move matters more than the headline. An oil rally on strong growth data and an oil spike on a supply scare can look alike on a chart but say different things about future earnings. Oil is also linked to the dollar, bond yields and gold; intermarket analysis shows how to watch them together.

Oil supply shock
A change in the oil price caused by a change in production, such as an outage, a war or a deliberate output cut.
Precautionary demand
Buying and holding oil in case future supply is disrupted. It is a fear-driven source of price spikes, and in Kilian and Park’s study the kind of oil rise that tended to hurt stocks.

Turn your phone sideways to read the image. Tap to close.

Three cards, each with an oil arrow and a stocks arrow. Global demand boom, in green: oil up, stocks up. Oil-specific demand, such as supply fears, in red: oil up, stocks down. Oil production cut, in grey: oil up, stocks with a flat line labeled smaller effect. The title reads why oil rose decides how stocks react (Kilian & Park, 2009), and a note reads tendencies found in US data, not rules.

How are oil prices linked to the Saudi stock market (TASI)?

Saudi Arabia is one of the world’s largest oil exporters, so oil reaches the Saudi market through several channels. The most direct is the energy sector, led by Saudi Aramco, whose weight in the TASI index is capped at 15%. Next come public finances: oil revenue and Aramco dividends fund a large part of government spending, which drives contracts for banks, builders, materials and services. The IMF’s 2025 review of Saudi Arabia, for example, linked the expected wider 2025 budget deficit to spending overruns and lower oil prices with minimal Aramco dividends, and noted that oil output had been held at 9 million barrels a day in 2024, the lowest level since 2011.

The link is real but not one to one. Many TASI companies, such as banks, telecoms, retailers and healthcare providers, earn their revenue at home, and non-oil activity has been growing. Research has reached mixed results: a 2009 study of the short-term reaction of Gulf stock markets to oil price changes found no significant effect for Saudi Arabia in its sample, while finding links in Qatar, Oman and the UAE. Results depend on the period and the method, so a move in Brent is a reason to look at TASI’s sectors, not a forecast for the index.

One more link matters for Saudi investors: the riyal is pegged to the US dollar at 3.75, so oil’s dollar price turns directly into riyal revenue, and Saudi interest rates tend to follow the Federal Reserve’s; see the US dollar and stocks.

How do traders and investors follow oil?

Habits many market participants use:

  • Watch the benchmarks: on TradingView, NYMEX:CL1! is the continuous WTI futures contract, and Brent futures are listed alongside; intermarket analysis shows a full dashboard.
  • Mark scheduled oil news on the economic calendar: the EIA Weekly Petroleum Status Report, usually on Wednesdays at 10:30 a.m. ET, and OPEC+ meetings. Inventory surprises can move crude and energy stocks within minutes.
  • Compare an energy sector fund with the S&P 500 to see whether energy stocks confirm the move in crude; sector rotation shows the ratio method.
  • Respect leverage: oil futures and leveraged oil products can lose far more than expected on a sharp move, as April 2020 showed; see futures trading for beginners.
  • For long-term investors, energy is one sector among eleven, and overweighting it on an oil view concentrates risk; see portfolio diversification.