The price of crude is also reacting today to the hostage situation in Algeria, which is signalling to crude traders that geopolitical tensions could be on the rise again. Geopolitics always plays a short-term role in pricing crude.
A third factor in today’s price hike is likely the surprise drop in U.S. crude inventories reported yesterday the U.S. Energy Information Administration. Although the decline was just 1 million barrels, it could be a sign that producers are cutting back on production in an effort to push prices back up. Crude prices declined more than 7% in 2012.
One final issue could be Saudi Arabia’s reported December cutback in production and an expected overall drop in OPEC supply.
The combination of these factors, and at least some worry that cuts to OPEC production cannot be made up by non-OPEC producers, are pushing the price of crude back up in the short term. Tomorrow’s release of Chinese GDP growth data could be the swing factor. If the Chinese economy grew more than the expected 7.8% in the fourth quarter, we’ll see another spike in crude prices tomorrow.
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