Why are oil prices going up?

WTIC Oil and SCO, 2012 year to oil, daily

Although some point to the “Iran premium” as a driver of recent oil price increases, others disagree, saying there appears to be little evidence such concerns are causing oil prices to rise. The chart above illustrates an increase of almost 7% YTD in oil prices so what’s the driver?

Partly increased economic activity in the United States, but also supply. Saudi Arabia recently cut exports even as their own domestic use increased. Meanwhile, several nations actually increased exports. So, net increase or decrease in supply? Its a murky picture but all we know is prices have been increasing. One of the difficulties in forecasting oil prices is accurately determining changes in supply. Industry organisations such as the Joint Data Initiative (JODI), the International Energy Agency (IEA) and OPEC all are willing to provide information but often disagree with each other. Its part of the reason I stay out of this market, unless there is a clear opportunity.

Some people think $100 a barrel is a fair price even as the US looks set to increase domestic oil production. If you think oil prices are set to fall and would like to short the market there are always Exchange Traded Funds such as SCO, illustrated in the lower chart.

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