What's Fueling Higher Oil Prices?

Joel Anderson |

GS, brent crude, oil prices, barrel, west texas intermediate, cushing, light sweet crude, tar sands oil, alberta, Canada, oil drilling, gas prices, gallon, crude oilTuesday saw prices for Brent crude continue their climb as news that Iran may cut off its crude supplies to Europe ahead of a planned embargo, bringing it to $117.50 a barrel.

This was the sixth straight day that Brent crude was up and the highest its been since August 2 of last year. This meant that, during trading today, the gap between Brent and U.S. benchmark crude briefly reached $20 before pulling back to under $18.  Brent crude finished the day steady at $116.23 a barrel.

European, Goldman Sachs Driving Price Changes


Brent crude has been steadily rising in price, jumping almost 60 percent since last August when it briefly touched $70 a barrel. This resulted in yesterday's trading imbalance between North Seas Brent crude and West Texas Intermediate crude, also known as light sweet crude. American oil can't be brought to global markets efficiently and therefore trades at a lower price.

Rising Brent prices have meant that WTI was building up in Cushing, OK, and Tuesday the price difference reached the point where Goldman Sachs (GS), an influential voice in oil futures, recommended closing positions for March delivery and taking profit from the price gap. This resulted in a 1.5 percent jump in WTI crude prices, leaving it trading at $98.41 a barrel.

Also contributing to the movement in crude prices were shifts in the currency market, with the dollar falling against the Euro on belief that a Greek debt deal is pending, and a production disruption at an Alberta plant processing Canadian tar sands oil.

"The spread got above $20 and it looks like some big players came in and pulled it back, then the dollar fell on expectations a Greece debt deal is coming," said Chris Dillman, analyst at Tradition Energy.

EIA, Others Predict Higher Prices in 2012

The rising crude prices came on the same day that the U.S. Energy Information Association raised its predicted prices for 2012 for most crude oil and petroleum. While the associations 2013 outlook remained steady at $103.75 a barrel, it raised its 2012 outlook to $100.40, up from the January forecast of $100.25. That January forecast for retail gasoline also went up, jumping from $3.48 a gallon to $3.55.

All told, the looming reality of sanctions against Iran along with ever-growing global demand looks to keep oil prices at or above $100 a barrel for the foreseeable future.

"As tensions between Iran and the West escalate, the risk to crude oil prices is becoming increasingly skewed to the upside," Goldman Sachs said. "We continue to expect that oil demand will grow well in excess of production capacity growth. It's only a matter of time before inventories and OPEC spare capacity become effectively exhausted, requiring higher oil prices to restrain demand."

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


Symbol Name Price Change % Volume
GS The Goldman Sachs Group Inc. 174.52 0.01 0.01 1,320,238
NFIUN:CA New Flyer Industries n/a n/a n/a 0


Emerging Growth

ParcelPal Technology Inc.

ParcelPal Technology Inc is a community based delivery service. The Company through its mobile delivery app enables businesses and individuals to quickly and affordably have items delivered locally though crowd-sourced…

Private Markets


D-Wave Systems is the first quantum computing company. Its mission is to integrate new discoveries in physics, engineering, manufacturing, and computer science into breakthrough approaches to computation to help solve…

Ozobot by Evollve Inc

Ozobot is a world leader in compact super intelligent robots that entertain and educate through fun interactive gaming.