One of the stronger commodities over the past couple of months has been oil. Oil priceshave moved from $85.00 a barrel for West Texas Intermediate (WTI) in November to just under $100.00 per barrel currently.
There are many variables that go into oil prices. Naturally, the initial reaction is to blame geopolitical risks; however, we have not seen any real increase in hostilities, such as an attack on Iran by Israel, that would explain such a strong move in oil prices lately.
Two recent reports might shed some light on the strength in oil prices. The Chicago Institute for Supply Management recently released its Chicago Business Barometer data for January, which showed a sharp 5.6-point increase to 55.6 compared to the previous month. Its data are based on a three-month average, indicating an increase in business activity. (Source: “Chicago Business Barometer,” Institute for Supply Management Chicago web site, January 31, 2013, last accessed February 4, 2013.)
Following that release, the national report on manufacturing by the Institute of Supply Management, as opposed to the regional Chicago report, showed that the Purchasing Managers’ Index rose to 53.1%, a 2.9% jump from December. Thirteen of the 18 manufacturing industries surveyed showed growth in January, with four contracting and one remaining neutral. What’s also of interest is that the petrochemical and coal sector reported a high level of capital expenditure and investment that’s expected to continue in the first two quarters of 2013. (Source: “January 2013 Manufacturing ISM Report On Business,” Institute for Supply Management Chicago web site, February 1, 2013.)
We believe the stock market and the economy have been propped up since 2009 by artificially low interest rates, never-ending government borrowing and an unprecedented expansion of our money supply....