Crude oil above $100

Share

Based on the price of oil, you wouldn't know that the global economy is being threatened by the European debt crisis, a slowdown in China and rising odds that the United States is slipping into recession. West Texas Intermediate crude oil surged above $100 (U.S.) a barrel on Wednesday morning, crossing the triple-digit threshold for the first time since July. Later in the day, the December contract for U.S. crude, which expires on Friday, settled at $102.59, up $3.22, after jumping to a session high $102.89, the loftiest intraday price since June 1

The gain means that oil has completely recovered from the steep slide endured during the summer and early autumn, when investors grew alarmed over the potential for Europe's sovereign-debt crisis to spill beyond Greece and affect a big part of the global economy. Those fears certainly haven't subsided since then -- and indeed, rising bond yields in Italy and France suggest that they have intensified.

According to Bloomberg News, the latest increase in the price of oil could be due to expectations that inventories in the United States have been falling. But, of course, that has little to do with oil's sharp gains of more than 30 per cent since the start of October.

Bespoke Investment Group pointed out that the gain in the price of West Texas Intermediate oil means that the spread between it and Brent crude, which is the benchmark for oil extracted from the North Sea, has narrowed considerably. The spread is now just 13 per cent, with Brent crude still costing more -- but the difference between the two benchmarks essentially cut in half over the past six weeks.

According to Bespoke, there is some good news here. While some crude oil rallies can sap consumer spending, this one looks different: "Since gasoline prices have been more closely correlated to Brent crude prices, US consumers have been relatively insulated from the rapid rise in WTI crude prices," Bespoke said on its blog. "Gasoline prices are significantly closer to their recent lows than the recent highs. As long as Brent crude continues to underperform WTI crude, rising oil prices will be less of a drag on US consumers than they have typically been in the past."