Road Trip! But I’m Gonna Need Some Gas Money

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Crude oil prices have rebounded to over $50/barrel, and gasoline prices have followed suit. Nevertheless, oil consumed per unit of GDP in the U.S. (oil intensity) has declined for many years.

Let’s take a break from trade and address some other investor concerns. Oil prices are the highest since 2014, just in time for summer driving season. Groan. Prices have surged despite OPEC agreeing to ramp up production last week. U.S. sanctions on Iran are the biggest factor in the higher prices but dwindling supplies from Venezuela, concerns about Libya exports and a Canadian supply outage are also applying upward pressure. The demand side of the equation is also favoring higher prices, as economic growth has pushed global consumption to record high levels of more than 99 million barrels a day. The U.S. has certainly ramped up drilling but there are still bottlenecks in the pipeline and refinery logistics chain. Low inventories, supply disruption and robust demand will keep prices high for the short term and through the summer, which is peak driving time as everyone hits the road for vacation. On the other hand, this does have positive implications for equities in the energy sector. Soaring energy company profits have encouraged investors and the energy sector is up more than 14% on the last three months, the best of any S&P 500 sector. Please watch oil prices on page 62 of the Global Perspectives Book and note that the long term average price of oil is about $43/barrel.

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