MERISTEM INSIGHTS

OIL PRICES ON THE MOVE

At this time last year, the global pandemic was declared, eventually stalling economic growth and sending crude oil prices into negative territory. But recently, oil prices have surged, with crude hitting highs not seen since before the pandemic. A hopeful sign. Recent production cuts and a belief in the potential for underlying economic growth are spurring a rally. Although the demand for oil is still lower than normal, many harbor hopes of a speedier than expected economic recovery thanks to the ongoing global vaccination effort.

The price of oil can often influence the costs of other production and manufacturing across the United States. For example, there is a direct correlation between the cost of gasoline or airplane fuel to the price of transporting goods and people. A drop in fuel prices means lower transport costs and cheaper airline tickets.  The ultimate lead indicator? Some view the value of oil as a lead indicator. Whether or not this will remain true for the future, it can be helpful to remember that lead indicators should never be seen as infallible. Abrupt and unexpected changes will prompt lead indicators to rapidly recalibrate their expectations for the future.

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