This article speaks to the sudden and recent rise of oil prices to 40$ a barrel. This is a two fold problem and solution. What we saw at the beginning of the year was a huge drop in oil prices to a little above 28$ a barrel. This was positive for consumers and was seen as a reprieve from lasting higher prices we had been experience for the last couple of years. However, the reason this price drop occurred does not bode well for oil industry. We saw a swelling of oil depositories who are reporting almost being overflowed, or to the brim, with oil. This slows U.S. production of oil and caused the supply to obviously severely outreach the demand. That is why this increase in price of oil is positive. Wall street also likes this increase in price because it helped smooth out some of the damage begun by the price drop earlier in the year. This article goes to show that price increase is not inherently bad.
http://money.cnn.com/2016/03/17/investing/oil-prices-spike-40-dollars/index.html
The article states that, the other issue is that if oil rallies too quickly, it could end up reverting back to what we saw earlier in the year when oil companies were quick to start pumping aggressively, and something like this wouldn't bode well. "That will only deepen the supply glut." Those concerns led Societe Generale this week to slash its year-end oil forecast to $38 from $48, according to the article.
ReplyDeleteI agree that this is best for the U.S. economy as well, as the low oil prices have provided benefits for consumers but has been a significant factor in the volatility of the stock market since the start of 2016. I think it would be safer if there was a gradual rise in oil prices instead, but will help with stability and investor confidence moving forward.
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