Stunning Oil Rally Moves Crude Back To $82 On 16% Recent Rise

Crude oil traded just above $70 a barrel in late August. That was its 52-week low. It has rallied 16% since then, and the rally may not have ended.

There is a great deal of speculation that demand from the BRIC nations for crude will outstrip supply next year. China certainly imports more than its exports now. Reserves that were once plentiful in Mexico and Indonesia are no longer. OPEC wants to keep production level.  So, demand has started to outrun supply, perhaps substantially.

The International Energy Agency which, among other things, forecasts oil demand, says that the need for crude will only rise modestly next year. That supposes a number of things. The first is that BRIC economies will not post better-than-expected GDP improvements. The next is that there will be no major disruption in supply from Nigeria, Venezuela, the Gulf of Mexico, or through the aged pipes that bring crude south from the norther regions of Canada and Alaska. That is a lot to assume in a world where supply of many commodities is unstable.

There has been a great deal of social unrest in Nigeria. Colombia is in the midst of contentious elections. Iran faces greater and greater sanctions, which it may counter by interrupting crude supplies–its only strategic weapon. Such a move may be irrational, but entrenched leaders have made irrational decisions before

It is easy to forget that crude moved quickly above $100 in the summer of 2008 and reached higher than $140 at one point. The reasons for the rise were not terribly compelling. Unrest in oil-producing nations was among them as was an increase in Chinese demand.

World instability and an increase in demand are factors in the price of crude again and not in a way that it terribly different from it was just over two years ago.

Douglas A. McIntyre