Fuel Up (It May Not Last)
Prices at the gas pump dropped toward the lowest of the year as a result of the price of crude oil per barrel dropping for several months. In fact, oil prices have been dropping so much that they are considered to be in a bear market, down more than 30% from the intra-year high of $76.40 in October.
The price of crude oil was $60.46 per barrel on 12/30/17 and stood at $50.93 as of 11/30/18. As crude oil inventories climbed, the excess production and softer demand pushed prices down. When it comes to commodities such as oil, supply and demand are typical drivers of price movements.
Oil exporting countries attempt to manage the overall production levels to align with expected demand. To do this, OPEC (15 countries) and its production allies work to establish agreed-upon production targets. The expected outcome of the Dec. 6 OPEC meeting is to agree to a cut in the crude oil output.
However, in advance of that OPEC meeting, Russia (non-OPEC) announced it would agree to Saudi Arabia’s (OPEC’s de facto leader) production cut. Separately, another announcement was the truce in the tariff trade dispute between the U.S. and China (which had also been hampering the demand for oil).
As a result of the Russia and U.S./China announcements, worries over the future supply/demand imbalance lessened, and the price of oil began to move upward as the month of December got underway (although it continues to be volatile).
The price movement of oil is a continual cycle of supply and demand forces which will not change. As consumers, the good news is that when oil prices fall, we benefit at the pump. As investors, when oil prices rise, we can benefit from investing in a diversified commodities fund that has exposure to the energy sector. Read our Economic & Market Commentary for Market Returns Year-To-Date, Market Returns Longer Term Annualized, Economic Indicators, and an Appendix.
Sources: Wall Street Journal, Federal Reserve Bank of St. Louis
This is intended for informational purposes only and should not be construed as legal, investment or financial advice. Please consult your legal, investment and financial professionals regarding your specific circumstances.