The price of oil has ripped higher the past three weeks and broken some strong resistance at $98/barrel (see chart), reaching levels not seen in the past 18 months. Global oil demand growth is mediocre with a slower/slowing China, continued problems in Europe and a slower on the margin US. And North America is in the midst of an oil boom. So, with demand on the margin weaker and supply booming in North America, why are prices ripping?
As we all know, pump prices respond faster in a rising environment, so expect a short-term knee-jerk reaction from consumers, but over time, they will digest the higher prices and inflation expectations will rise.
Like the pressure building in an oil well, prices build up steam when bumping up on resistance levels. The greater the resistance, the greater the spike. As the stock market hit new highs, oil found its hole and made it look easy to break through.