Saturday, February 24, 2018

Rising Oil Prices, Here’s Why

April 6, 2010 by  
Filed under Inflation Hedge Strategies, Move

Oil consumption is barely rising. There’s plenty of inventory. So why is the price of oil sky rocketing? Oil prices have more than doubled during the last 15 months. So what gives?

Ian McGugan gives us a Canadian perspective in, April 6, 2010. As McGuigan sees it,

The most likely explanation is that oil is no longer simply that stuff that fuels our cars and heats our homes. It’s become a financial asset.

McGugan cites Bassam Fattouh of Oxford University, who wrote a paper recently “If market participants attach little weight to current market fundamentals and if future market fundamentals are highly uncertain, at which price or price range should the oil market clear?” His answer is that oil prices have become “indeterminate” — McGuigan decodes that and explains, that’s “a professor’s way of throwing up his hands and saying you can no longer predict what’s going to happen next.”

The Canadian Dollar (The Looney), in contrast to the U.S. dollar, is more inclined to follow the price of oil, as well as the price of oil.

McGugan concludes:

For Canadian investors, all of this adds up to a recipe for stress, since the loonie and the price of oil have become tightly linked. If Kemp is right, stock prices, oil prices and the loonie are all likely to rise–or fall–in sync. Rather than reducing the risk in your portfolio, a hefty weighting of oil stocks may intensify it. So long as oil prices are going up, you’ll love the results — but just watch out for that inevitable step down.

Read More about Why The Price of Oil is Rising.

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