The recent climb of crude oil prices has been ascribed to many factors.  First, excess production capacity for crude oil has been extremely restricted in recent times.  This is coupled with a second factor, a prolonged world-wide economic expansion produced significant demand growth for petroleum which outpaced production, causing crude oil prices to increase.  Third, the exchange rate of the US dollar has significantly fallen in recent years, and since crude oils are normally priced in U.S. dollars, the purchasing power of the petroleum producing countries has been reduced.  Finally, the recently rising interest rates have increased the costs of holding crude oil and petroleum products in storage, eliminating much of the buffer stocks which help mitigate petroleum price increases in the past.

The objective of this study is to exogenously find regime shifts in the crude oil market that affected price and to determine which factors may have caused these market changes.  This will be done by using graphical pattern recognition analyses aided by statistical measures to find different price behavior patterns in the response of price to various macroeconomic and market factors.  The factors to be studied include: petroleum inventories, OPEC’s excess production capacity, world demand for crude oil, exchange rates, and interest rates.  It is expected that the results from this study will identify crude oil market regime shifts, shed light on the roles that various market factors may play in each of those identified regimes, and thus improve the performance of short-run crude oil price forecast models.