In the last quarter of 2017, the market that was a major focus of attention was the price of Bitcoin. But almost by stealth, a more traditional market was making impressive gains – although admittedly not on the scale of the cryptocurrency market.This was the oil price – it traded as low as $42 a barrel in June 2017 but ended the year almost 50% higher. And this strength has continued into this month with an oil price rise reaching $75.
It does feel as if this spectacular rise since last summer has not raised too many fears about the possible impact on the global economy. Back in 2015, the International Monetary Fund (IMF) reckoned that a $10 move in the price of oil had 0.2% effect on global growth. Then there's the knock on-effect for inflation caused by rising transport costs – whether its making your daily commute more expensive, or hitting the bottom line of the factory producing the latest electronic gadgets. The world's central banks have been more focussed on inflation over the past 12 months, after what felt like a long period where the cost of living stayed stable. A continuing positive oil price forecast may well mean the central banks have to accelerate their current plans for raising rates as a way to keep any resulting inflation under control based on the current economic trends.
As usual the oil market news makes for something of a jigsaw to figure out the balance of oil supply and demand. The OPEC & Russia have increased supply, but there are concerns that US sanctions against Iran will result in shortages. So, if you pick the right source for your story, it's possible to construct a compelling reason why oil should be $20 higher – or indeed $20 lower.
Perhaps it’s best to turn to what is actually happening in the market – what do the buyers and sellers currently think? It looks as if they too have hit stalemate in the past couple of months. In the last week, the price of oil has admittedly hit its best levels since November 2014 – but it has struggled to build further on these gains.
But when this happened in May, there was plenty of buying interest in the mid-$60s. While a short term drop in the price of oil can't be ruled out it could well end up being just the springboard for another attempt at fresh multi-year highs.