What does trade tell us about the oil
price?
In the first
Trade Outlook of 2017, we pointed to a somewhat negative outlook for oil
prices. Although analysts at the time saw prices increasing as demand recovered
and production stayed at similar levels, based on our trade forecast for oil,
we felt that the picture was at best neutral and maybe slightly negative. This
was in line with OECD thinking but the World
Bank and the EIU at the time were both suggesting that prices would rise.
The reason for the more negative outlook that we had at the time was because of the very high correlation between world trade values and the oil price (Figure 1). This correlation, of 90%, does not tell us how the oil price will move. It simply tells us that it is highly correlated with trade values, which is reasonable since oil is the world’s third largest traded sector with a value of $1.9 trillion in 2015. However, it does tell us that if trade is projected to remain static, then there is a greater likelihood that oil prices will also remain static.
The reason for the more negative outlook that we had at the time was because of the very high correlation between world trade values and the oil price (Figure 1). This correlation, of 90%, does not tell us how the oil price will move. It simply tells us that it is highly correlated with trade values, which is reasonable since oil is the world’s third largest traded sector with a value of $1.9 trillion in 2015. However, it does tell us that if trade is projected to remain static, then there is a greater likelihood that oil prices will also remain static.
Figure 1: Monthly value of
world trade in oil (USDm) vs oil spot price (last price monthly), Jan 2010-Jan
2017
Source: Equant
Analytics, 2017
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