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.”
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