Crude Supply Risk Index: A Detailed Analysis

In the dynamic global oil market, the supply risk index plays a crucial role in measuring the price influence of changes in oil supply on a weekly basis. This analysis is conducted at the country level, where a positive score indicates a bullish impact on price, while a negative score signals a bearish impact. The absolute value of the score reflects the impact's magnitude. On a global level, the price risk index is an aggregate of country-level risk scores, weighted by each country's share of global crude and condensate capacity. Thus, the value of the global price risk index is interpreted as follows:

Bullish: >0.08
Neutral: -0.08 to 0.08
Bearish: <-0.08
This index comprises six critical factors: Political Violence, Geopolitical Risk, Export Risk, Facility and Personnel Violence, Ministerial/Policy Volatility, and Labor Unrest.

Below is an example of the index for various countries, illustrating how the global price risk is compiled from each nation's contribution.

Detailed Factors of the Index

Political Violence: This factor assesses the likelihood of state failure, civil war, coups and coup attempts, revolution, and/or public unrest, and terrorism in a country, based on recent history and current dynamics. A score of -2 indicates a moderate bearish impact, while a score of 2 suggests a moderate bullish impact.

Geopolitical Risk: Measures the degree to which a country is vulnerable to the threat of external war or conflict with its neighbors, as well as risks stemming from broader geopolitical tensions, including sanctions and/or reputational risk.

Export Risk: Evaluates constraints on the export of oil, considering factors like physical infrastructure constraints, domestic or external political interference over export infrastructure or policy measures favoring domestic energy use over exports, security risks including piracy, vandalism, or terrorism, the risk of international sanctions that directly or indirectly restrict hydrocarbon exports, and the potential for production cuts in coordination with OPEC’s market management strategy.

Facility and Personnel Violence: Assesses the presence of various threats to both energy company personnel and facilities, including pipeline attacks, bombings, piracy, non-lethal violence, kidnappings, and killings.

Policy Change: Assesses the potential impact of changes in government policies and/or sector leadership affecting oil production and/or exports. Shifts in policy or leadership direction can significantly affect production and export risks.

Labor Unrest: Measures the risk of disruption to oil production and exports stemming from strikes and lockouts, reflecting the scale and probable duration of such events.

Contribution to Global Risk

The global price risk of each country is calculated by summing all weekly risk factors, weighted by their impact. Additionally, each country's contribution to global price risk is adjusted by its share of global crude supply, indicating that those countries with a higher percentage of supply have a more significant impact on supply risks than those with a smaller share.

Industry shocks, such as major supply disruptions or unforeseen events affecting one or more countries, can temporarily change countries' importance in the global market. In such cases, analysts may manually adjust country weights to reflect the market impact's magnitude.