Tuesday, June 26, 2012

Oil Prices Better Reflecting Economic Realities

Back on January 2012, we wrote: "We're still looking for reasons why the consensus 2012 oil prices shouldn't be closer to $80ish than $100+ for 2012." At that time, there were many bearish forecasts for oil, some of which related to fears about closure of the Hormuz Strait.  Today, crude closed at about $79.43 on the NYMEX. 

The consensus broker forecasts made no sense at that time, and the oil prices were inconsistent with other real economic components of the forecasts.  From the intra-year peak to here, I can't piece together what drove us to the peak, as the Hormuz hype was just that.  Technical issues with Brent v. WTI can't explain the runup either. 

Oil price markets, like stock markets, often drift away from their economic underpinnings. 

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