Why do trade finance professionals need to worry about the price of oil?
Value of world trade vs WTI Crude average annual prices, 2000-2016
Source: Equant Analytics, Statistica.com
The drop in the value of trade in 2015 has gone largely unreported. Yet many trade finance practitioners will admit that last year was particularly tough. The chart tells us why. Between 2014 and 2015 there was a 15% drop in world trade values. This compares to the 23% drop in 2009.
Since 2000 the value of world trade has, largely, moved in a similar direction to the average price of WTI crude. The correlation between price movements and movements in trade monthly is over 90%. This is unsurprising since oil accounts for such a large proportion of world trade. If oil prices remain at their currently low level, the WTO forecast of 1.7% trade growth in 2016 and even the Equant Analytics forecast of 1% look over-optimistic.