Oil Prices Edge-Up; What Does This Mean for the Markets?

On a Fox Business News segment recently, I had the pleasure of talking about the Consumer Price Index report and rising oil prices and what these mean to the domestic and global markets. Following are some of the observations I shared.

According to five investment banks and industry analysts who were surveyed during the last quarter of 2017, they expected oil prices to continue climbing in 2018. As of this writing, crude oil is at $67 per barrel (it was at $71 per barrel at May 18), which is the same price as it was one year ago, but certainly not near the $100 per-barrel levels seen in 2014.

The analysts cited OPEC-led production cuts together with increased demand fueled (no pun intended) by a growing global economy. However, significant price increases should be kept in check in at least the short term by a booming North American supply along with the supply in Venezuela, holder of the world’s largest crude oil reserves (although Venezuela is facing mounting humanitarian and economic challenges).

The impact to the U.S. economy can be mitigated due to the increased production of crude courtesy of increased drilling and enhanced production from tar sand deposits. Consumers might, however, feel some additional pain at the gas pumps this summer—as gas approaches $3.00 per gallon—as well as in heating oil and other petroleum-based sectors.

Globally, Asia could have the most risk exposure from oil-price volatility, facilitated by tightening monetary policies leading to increased inflation along with higher U.S. interest rates. And, of course, it remains to be seen how geopolitical events play out in volatile areas around the world, particularly the Middle East. Will it be a case of “all bets are off,” or will other oil-producing counties fill any supply gaps?