Naysayers, doomsday theorists, and sell-in-May advocates are eating their words after forecasts of $20 oil proved to be dead wrong.
Yes, crude oil continues to gallop higher, with prices rising 50% in just over three months.
This week, West Texas Intermediate (WTI) soared above $60 per barrel to $62.58, the highest point so far this year. While Brent Crude went up to $69.93 per barrel.
So how the heck did this happen… and – more importantly – will the momentum continue?
Well, a series of sequential events just happened to fall like a stack of dominos and drove the price of global crude oil up.
You see, U.S. oil production has dropped from its peak and continues to fall. At the same time, rising demand, which has materialized since the collapse of crude oil prices, is allaying a global glut and driving a rebound in crude prices.
Since April’s price rally of between 20% and 25%, oil bulls have been driving the market up on the notion that a supply glut was easing from tightening world production, despite continuous builds in U.S. crude stockpiles.
Meanwhile, the deflation scare has receded as prices have bounced back, with cheap oil helping to spur consumer demand and economic growth.
An unlikely sequence of four events made conditions perfect for this jump.
First Event: The Disruption in Libyan Crude Exports
Protestors seeking state jobs stopped crude flows to the eastern Libyan oil port of Zueitina on Tuesday. Libyan output is already below 500,000 barrels per day (bpd), one-third of what the country pumped prior to 2010.
Zueitina’s closing is particularly harmful to Libya’s oil exports because it was one of only a few Libyan ports still exporting oil. Now, there’s even less oil leaving the country.
Second Event: Saudi Arabia Raised Prices for Northwest Europe
The Saudis increased the official selling prices for its Arab Light grade crude to Northwest Europe to reflect the recent price rally in rival grades.
