Surging Oil Catches Traders Off-Guard
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After losing 50% of its value in 2014, oil prices have surged in 2015, rising from $40 to over $60 a barrel in just three months.
The price of oil rose to over $60 a barrel in the United States on Tuesday, and has risen even further in early Wednesday trading. Analysts disagree on the exact causes, but as one analyst wrote in a note on Wednesday, “bulls are in control of the market.”
After losing 50% of its value in 2014, oil prices have surged in 2015, rising from $40 to over $60 a barrel in just three months.
The price of oil rose to over $60 a barrel in the United States on Tuesday, and has risen even further in early Wednesday trading. Analysts disagree on the exact causes, but as one analyst wrote in a note on Wednesday, “bulls are in control of the market.”
Some skeptics argue the recent volatility is likely to reverse in the short term, with a number of downward pressures continuing to challenge oil prices. Most significantly, oil inventories remain at record levels, and the stockpile continues to rise. In April, the stockpile of crude inventories rose by 1.3 million barrels, a strong continuation of a trend that has persisted from a year ago. Total stockpiles rose even as crude imports fell by 1.069 million barrels per day, indicating that domestic production continues to fuel the U.S. economy.
Bulls for oil note that that increase is the lost rise of 2015, and may indicate the trend of strong growth of oil inventories is likely to reverse by the end of the year. Some analysts are calling for stockpiles to begin to decline by December, although some suggest that the decline in inventory growth is likely to slow its pace, as consumption remains weak.
Impact on Asia Consumption, Russia
The rise in oil prices has caused uncertainty for Asian economies, which are dependent on oil imports for growth and have seen a temporary boost thanks to the fall in oil. Some analysts suggest that emerging Asian economies that are net importers of oil have seen as much as a full percentage point of GDP growth from the cheaper energy.
However, net exporters have suffered from the trend, with the most noticeable weakness in Russia. The European Commission recently said they expect Russia’s GDP to fall by 3.5% in 2015, even after oil prices recovered.
However, the EC expects Russia to climb out of recession in 2016, thanks in large part to the rebound in oil prices. The economy will stabilize “based on the technical assumption of sanctions expiring in July 2015 and also given the slight rebound in oil prices,” the EC said.
Russia’s Finance Minister has also publicly acknowledged that sanctions and the fall in oil have hit the economy hard; causing the recession that continues to plague the nation.
U.S. Consumer Impact
The impact on U.S. consumption remains unclear. While the fall in oil prices encouraged many to conclude that personal consumption expenditures would rise in America, in reality the trend remained largely unbroken, with spending growth flattening throughout late 2014 and 2015. With an extremely easy quarter to compare against, the U.S. GDP rose just 0.2% in the first quarter of 2015.
According to the Bureau of Economic Analysis, PCE rose just 0.4% in March, despite the large fall in energy costs. Most economists believe economic uncertainty, combined with flat wages, drove the weakness make American consumers less keen on spending money that they have been saving from cheaper gas and heating bills.
