As I write this, Brent Oil is currently trading at $126 a barrel while WTI is trading at $112.50 a barrel. Believe me; this is not my dream scenario come true as I always reiterated that oil anywhere above $75 or $80 is very profitable for energy companies and comfortably supported by the global economy.
The downside to these prices is consumers spending more of their hard earned money on gas instead of in more useful sectors of the economy. These high prices will also trigger demand destruction as some people choose to drive less or use more public transportation.
Why is oil trading this high? Well it’s not because of Libya’s civil unrest since the lost Libyan production was offset by other OPEC members increasing theirs. While oil prices rise, OPEC does not see a need to hold any special meetings before its scheduled meeting in June. That’s because in OPEC’s view, the market is well supplied.
Then why is Oil so expensive? The UAE Oil Minister Al-Hamli puts it bluntly: “International markets are choosing to ignore market fundamentals and bet on the worse case scenarios.” OPEC still has spare capacity of 4 million barrels per day and inventories are comfortable across the world with high stocks in the US.
Last time oil hit $150 per barrel, we know what came next as it plummeted back down to $40. Is a repeat on the way? Commodity prices are screaming about rising inflation because of a continuously weakening USD. Commodities calling BEN, BEN, are you listening?
Canada Weaning Itself Off US Trade
Weekly blog roundup:
You can learn financial planning tips from Guns N’ Roses @ My Own Advisor
Last Minute “Blogging as a Business” Tax Tips @ Young&Thrifty
Reviewing Spring Gardening Goals @101 Centavos
Investing: 3 walls to watch @ BalanceJunkie
6 advantages of dividend investing @ WhatIsDividend
Dividend stocks vs Corporate bonds @ TheDividendGuyBlog
Is Buy And Hold Investing Dead? @MoneyReasons
How To Invest In India @Money Cone
Gold Versus Dividend Stocks @ Dividend Growth Investor
What Motivates You to be Financially Responsible? @ Barbara Friedberg PF
The Lost Decade? @ DIY Investor