By SNW Asset Management via Iris.xyz
Oil prices have increased since the lows in early 2016, and the upward trend has intensified since 2017. It is no oil crisis, and we are certainly nowhere near the peak of $145/barrel in June of 2008. Remember filling up your SUV back then?
We care because higher oil prices are yet another headwind to economic growth, a headwind that is getting stronger. Outside of the obvious impacts of higher gas prices and the cost to heat your home in winter, higher oil prices work their way through the economy as petrochemical cost increases and transportation expenses, and eventually end up causing higher inflation. We know the Fed likes to call energy and food price fluctuations transitory, but the flu is also transitory and certainly not pleasant!
Of course, higher oil prices help oil producing countries like Saudi Arabia and Russia. Though the U.S. is certainly producing more oil these days, we are still a net oil importer.
Chart: West Texas Intermediate (WTI) Crude Oil Price
Unfortunately, on balance higher energy prices are an economic drag and we can see these headwinds increasing. As a basic commodity, oil should settle at the marginal cost of production, which many think is around $65 per barrel
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