Brent North Sea Crude is trading well above $120 a barrel on news that the China market is overheating again – but that there is no longer a worry of a double-dip recession (especially in China). West Texas Intermediate is not tracking as high as Brent – although the price is still elevated in trading today. Oil is still one of the bigger stories of the year – and will continue to be an issue moving forward if fall economic activity appears to be tracking in its current, positive direction. [private_member]
We are still seeing a significant gap between Brent and West Texas Intermediate in terms of price. Today’s gap is nearly $21, but should start to close over the next couple of months. Right now, that would still make WTI a bargain on the open global market as long as the Cushing facilities in Oklahoma can affordably get supplies to the Gulf for export. Today, those mechanisms do not exist in a manner that would allow for low-cost transfer of oil inventories. Therefore, we could actually continue to see the spread between the two as inventories a Cushing continue to build.
The volatility in the oil markets and the role of futures speculation was pretty evident today. US oil prices have been hit hard over the past several trading days on speculation that the US economy was slowing more than expected. A strong retail and inflation report in China has helped to boost global sentiment – and with it – the rate of speculation in gas prices.
What needs to be pointed out is that Brent Crude is now still above $120 a barrel. This is the price that multinational corporations will be paying for transportation fuel costs and consumers in those markets are still paying much higher rates for fuel. Anyone sourcing products from global sources will be seeing higher transportation and procurement costs for goods based on this factor (as well as other raw material price increases). For those that track complex Total Landed Cost calculations, the difference in fuel costs could be a significant factor. If we are worried about the impact of higher gas prices on the US consumer, imagine what the impact is on consumers in markets where the price of gasoline is a much higher percentage of household income. In some countries, the combined cost of food and fuel is higher than 25-35% of household income – in the US it is still approximately 17%. Therefore, the inflationary impact of higher fuel and food prices on the international consumer is much greater.[/private_member]Tweet