The price of a barrel of Brent crude oil rose to $68.88 a barrel yesterday, one of the highest recent readings since December 2, 2014. That’s a spectacular 147% rebound from the January 20, 2016 low of $27.88.
It’s remarkable because it follows a 76% crash in the price of this commodity from its June 19, 2014 peak (Fig. 7).
The price of oil is highly correlated with the CRB raw industrials spot price index. That makes sense since both oil and other industrial commodity prices are influenced by the global business cycle.
They can diverge from time to time because the supply-demand balance in the oil market includes a geopolitical component that’s absent from other commodity markets.
Just for fun, Debbie and I constructed a global economic indicator that is the average of the CRB index and the price of a barrel of Brent (Fig. 8).
This Global Growth Barometer rebounded in 2016, stalled in early 2017, but has been moving higher again to the highest level since late November 2014.
The rebound in the price of oil is remarkable given that the most recent freefall was attributable to the rapidly rising oil output of US producers (Fig. 9). US production didn’t fall much when oil prices plunged. Now that production is back to as high as it was in 2014. Yet the price of oil has been rising, and US crude oil inventory stocks have been declining (Fig. 10).
The obvious conclusion is that global oil demand is outpacing supply—yet another confirmation of the strength of the global economic expansion.
Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.
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