Crude oil price: Influences in an era of increasing unconventional oil production in the United States

The discovery and rapid development of unconventional oil resources in the United States during the first quarter of the twenty-first century has increased the global supply of crude oil and significantly influenced global oil prices. This research defines the United States’ unconventional oil production as the most important influence on global oil prices from January 2006 to the present, with two to five times the relative importance compared to the United States conventional, Saudi Arabian, other OPEC, OPEC+, and the rest of world oil production. Global consumption (demand) and 71% of global production influence on global oil price are mediated through inventory balance variance. Both global demand and the mediating variable, inventory balance variance, are relatively more important influences on global oil prices than the production variables. The variations of the dollar to international currency exchange rates measured by the U.S. Federal Reserve’s Broad Dollar Index are demonstrated to have a more important influence on the real price of crude oil than any of the supply, demand, and inventory balance variance variables, and this research quantifies these relationships. The broad dollar index and related monetary policies are shown to be the dominant variables influencing the real price of crude oil globally, not supply and demand variables. A new model for supply and demand, including U.S. unconventional, OPEC excluding Saudi Arabia, and the rest of the world oil production, and demand mediated through inventory balance variance and Saudi Arabian production, OPEC+ production, and the broad dollar index directly to the real price of Brent crude oil in the next month is developed. Analyses of the model paths are defined, and the model’s validity is supported using statistical and predictive analytical methods.