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NYMEX Crude Oil Futures this week reached back above the $70-per-barrel mark, part of a dramatic climb back from the $40-per-barrel range. The rise in oil prices is expected to ease the budget strain that oil-exporting countries have experienced in the wake of unprecedented low oil prices.
However, while there are guesses about what is causing the rise in oil prices, the actual mechanics of the situation are cloudy. Suggestions have included the following:
All of these things could be drivers of the current increase. Nevertheless, the following are also true:
It may be that shifting fundamentals —severe cuts in planned capacity expansions and production and signs of economic recovery —coupled with fears of impending inflation have drawn speculative money back into the commodities markets. This influence was recently noted by the OPEC secretary-general as quoted in the Financial Times: “Speculators are coming back, not only to oil, but to all commodities. We are not happy … and we do not want to see them to be a factor in prices.” However, the underlying market fundamentals will have to shift to allow them to stay in the market over the long term.
It’s hard to predict which direction oil prices will go from here, but up or down I expect oil prices to remain volatile in the next few months.
Financial Times article on the recent rise in oil prices Financial Times article on demand causing oil price surge
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