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While broad stock markets are at or near all-time highs, oil is still well below its peak price. The commodity is actually still below $100/bbl. and it has lost almost 20%-- when looking at (USO - ETF report)—over the past one year period.
This is pretty surprising as the more robust economy usually would signal modestly higher oil prices are not far behind. This is especially true given the broad positive data which has stretched across not only consumer figures, but employment and manufacturing data releases as well.
What’s keeping it down?
Part of the trouble for oil is the strong dollar that we have been seeing lately. The greenback has been quite firm in recent trading, and this usually acts as a barrier against higher crude oil prices.
Additionally, a bigger supply of crude is also helping to keep a lid on oil prices as more is being discovered all the time in the Northern U.S. and Central Canada. It also hasn’t hurt that Europe has been shaky, and that some emerging markets are seeing less aggressive growth rates.
Still, one has to imagine that this trend cannot go on forever and that higher oil prices could be ahead if the economy continues to surge. After all, crude oil and stocks tend to move in lockstep—although oil does often exhibit greater volatility.
For the most part, oil and broad stocks have been moving together, but something has clearly happened in the past few weeks. Yes, we have seen additional dollar strength—largely due to weakness in yen, pounds, and euros—but something else is definitely at play.
Perhaps this is just some additional rotation out of commodities, at least until the next leg of the equity rally gets underway…
But what about you?
What do you think happened to oil and whereis itgoing next?
- $125/bbl.- higher prices are coming with the summer driving season
- $75/bbl.- lower prices are ahead as the dollar continues to strengthen
- $100/bbl.- flat trading is ahead for oil, I don’t see how it breaks out one way or another.
Let us know in the comments section below!
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