Oil Bouncing, but Balanced

Oil has been on the rise since last June, when prices hit an interim low of about $42.50 before crossing $70 for the first time since 2014 on May 8. The next day, President Trump announced the U.S. would be withdrawing from the Iran nuclear deal. As discussed in our Weekly Economic Commentary, we view rising oil prices as largely a result of rebalancing supply and demand, and believe prices will stabilize as markets digest the recent news.

In our view, other producers—including the Organization of the Petroleum Exporting Countries (OPEC), its partners, and the U.S.—will  be able to offset decreased supply due to reinstated sanctions on Iran,  particularly the U.S. as it continues to expand its production capacity and its ability to bring more oil on line quicker as technology improves.

With oil in the headlines, it may be helpful to remember that oil prices are naturally volatile. In early 1999, oil sat near $11 per barrel, but by 2008 it had peaked at over $140, as our LPL Chart of the Day shows. During the recession that stemmed from the Financial Crisis, oil fell to just over $30 before once again topping $110 as late as 2013.

According to LPL Research Chief Investment Strategist John Lynch, “Even if prices stabilize at current levels, it will be a modest hit for consumers, and it may temporarily push headline inflation higher; however, we believe the impact may be small compared to economic support from a strong job market and the new tax law.”



The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not Bank/Credit Union obligations and are not endorsed, recommended or guaranteed by any Bank/Credit Union or any government agency.  The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.


For Public Use — Tracking #1-730388 (Exp. 05/19)