As crude prices cross over the $100 a barrel mark again, some market observers interpret the oil rally since early October as a signal for optimism on the global economy. However, the rise in oil prices and oil-related exchange traded funds may also be attributed to growing tensions in the Middle East, and could squeeze U.S. corporations and consumers down the line.
“Oil prices continue to face upward price pressure because of supply uncertainty resulting from ongoing unrest in the oil-producing regions of the Middle East and north Africa,” according to a recent U.S. government report.
The oil market is currently factoring in supply disruptions in Libya, Syria and Yemen. Additionally, oil moved last week on news of an imminent attack on Iran’s developing nuclear program – any attack on Iran would cause major disruptions in oil supply because the country is a major oil producer and because of Iran’s control over the Strait of Hormuz, a crucial shipping lane for oil.
The quick rise in oil and energy prices could crimp corporate profits and pressure households as they spend more to fill up the tank and on heating. [Oil ETFs Soar as Crude Tops $102 a Barrel]
Oil prices may also be getting a boost from expectations of further quantitative easing from the Federal Reserve.
U.S. Oil Fund
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Max Chen contributed to this article.