The BBC reports that crude traded over $85 on the first day after the Easter weekend reaching $85.31 a barrel for light crude. The news service identified the US jobs number from Friday as the reason.
While the analysis may be correct, it begs the question of what will happen if a strong recovery really does take hold in the US, UK, and EU nations. Jobs added in the US in March were barely above 100,000 when government hiring for Census work was backed out.
The stage is being set for an assault on $90 or even $100 per barrel of oil. There has been anecdotal evidence that crude demand in China has risen sharply. Earnings reports from Sinopec (SNP) and manufacturing data from the People’s Republic would support that evidence.
Economists are still worried that the recovery in the West will be jobless. That may not be true. Job formation could start in earnest in the second quarter if revenue at many US companies improves and job productivity reaches its limits. Industrial consumption will continue to rise as demand for factory good improves and re-employed Americans will be more likely to drive and increase gasoline demand.
Even if the recovery is jobless. growing GDP is a sign of an increased need for crude, diesel, and petrochemicals used to fuel the industrial and manufacturing sectors.
OPEC has indicated that it is ambivalent about what it may do if crude moves to $90. The cartel may be tempted to increase supply and hope that pushes down prices. This might help the recovery and long-term demand stay on track. Or, OPEC may take the money and run along with other large producers like Russia. What happens a year or two from now is too far off to raise the concerns of crude exporters.
Douglas A. McIntyre
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