Oil surged to the highest levels in more than three years as tensions simmered in the Middle East, signaling optimism that a glut that has crippled the market for years is ending. US crude futures jumped $1.31 or2 percent to $66.82 a barrel Wednesday.
Oil Hits Highest Price Since 2014, WSJ, April 12, 2018
This quote demonstrated the conventional view that supply and demand drive oil prices. Yet the percentage moves in oil prices, up and down are far greater than any shift in supply and demand usage. Our conclusion is that prevailing mood towards oil has much more to do with setting the prices.
A strong economy can afford higher oil prices. A weak economy cannot. As the economy has improved here and around the world in the last year, oil prices have risen. This is perhaps the better view of how prices are determined.
Price has once again risen to the $66 former high, which is now a resistance level. Breaching this level will suggest a move well into the 70s. Unleaded gasoline has soared from the start of this year around $1.75 to $2.07.
But this is not happening in a vacuum. Over half the CRB commodity index is energy related. Since Monday it has risen from 193 to 198.83. The Goldman Sachs Commodity Index GSCI, seen on the CNBC ticker, jumped from around 2,500 to 2,689.
And oil share prices are finally joining the party. The XLE Energy ETF jumped 4.89 percent Wednesday. The XES Energy Service ETF is finally coming to life, up 9.33 percent Wednesday. This indicator really needs to follow through to the upside. It has yet to generate a moving average buy signal.
After an early April test, the Dow Industrials bounced right at the previous support level around 23,400, 23,336 to be exact. Best guess is that it will now congest sideways. Resistance lies above at 24,600.
Markets detest uncertainty. This explains why markets behaved so well in the I Like Ike era of the 1950s. Had Twitter existed we can be pretty sure Ike would never have used it. Lately the markets have had plenty to be concerned about.
President Trump tweets that ‘missiles will be coming’ in a sort of informal re-start of the cold now growing hotter war with the Soviet in Syria. My recent reading indicates that the British had no qualms about using poison gas in the Middle East after WW I. No doubt poison gas is a lousy way to die but then so is being shot with an AK 47. It just seems odd that thousands can die by conventional weapons but if a few dozen die by gas, now the President is all in for Syria after wanting out just last week.
Paul Ryan’s departure surely leaves a leadership vacuum in the House. At least he was able to deliver votes on the tax bill. That was something Senator McConnell found near impossible on the Senate side. With some 36 Republicans leaving open seats up for grabs, it is getting harder to see their remaining in majority after November.
Perhaps the most notable change I spotted in social mood this past week was in a stock market commentary by stockcharts.com technician John Murphy. Mr. Murphy described last Friday’s 580 point drop as the market being ‘Trumped.’ President Trump had made yet more threats of trade tariffs which was taken as the reason for a big drop. The more important thing is whether the name Trump used as a verb will gain widespread use as a negative connotation for an event caused by Trump himself. If that is the case, social mood will be turning against the President.
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