Over the past few months, oil prices have dropped because of lower global demand as consumers have pulled back and production has slowed. Many are stumped as to why recent oil prices have remained the same and what it means for exchange traded funds (ETFs).
The harsh economic conditions had analysts speculating that oil prices would continue to fall as demand waned and use dropped. Now oil prices are still hovering in the neighborhood of $50 per barrel, and oil remains expensive by historical standards, reports Jad Mouwad for The New York Times.
Oil consumption has not risen and the economic conditions around the world have not improved, so what is giving the commodity its strength to remain at relatively high prices? Oil inventories are actually at their highest levels in 19 years, and the demand for oil is sharply dropping to levels seen in the 1980s.
Turns out that oil is actually a favorite of investors right now, as the slumping dollar is not offering refuge and inflation remains a threat on the horizon. OPEC has also been successful at cutting output sharply to match the lower demand. However, supplies are still high.
Consumers may still see a rise in gas prices this summer, peak driving season, but the fact remains that higher fuel prices do not support higher gas prices at the pump.
- United States Oil (USO): down 15.8% year-to-date