I’ve written in the past that it seemed to appear that bad news no longer affected the price of oil. Usually, when any kind of negative development happens in the Middle East, this has the effect of spiking up the price of oil. Whether it spikes up a few cents here and there, or it pushes oil up a dollar or two, you can bet that negative news events will push up the price of oil.
Well, in the past few months, that hasn’t been the case. Even when the head of OPEC would try to make some statements regarding oil hitting the $100 or even $200 per barrel, the price of oil continues to decline. There was quite a bit of speculation brewing that perhaps the bad news cycles no longer affect the price of oil.
Well, it appears that the old patterns are back. Now that Libyan oil output has plunged due to clashing militias and rebel armies there, it appears that oil has become increasingly sensitive to regional news. Thanks to the Libyan news as well as expected decreases in US oil production, Brent Crude oil has spiked to $62 a barrel. The US oil price is also up to $53 a barrel.
Does this mean that oil prices are now sensitive? I wouldn’t go that far. I suspect that the real test is whether the price of oil will hit $70 or $75 a barrel. At that rate, shale oil begins to become economically competitive again. Once that supply starts flooding the market, we will see if there is, as expected, a natural cap to global oil prices. Some analysts are saying that maybe the world will be healthier if oil is priced around $60 to $65 a barrel. Maybe low oil price isn’t that beneficial for the global economy. We shall soon we how this all plays out.
