The price of Brent crude rose above $120/barrel today on both the Nymex and ICE exchanges, a six-month high. The rise is attributed to positive news on US unemployment and continued hopes for an agreement on the Greek bailout.
In some respects, the price jump simply reflects traders’ desire to lock in a price that they believe will go higher. An awful lot of things need to go right for their hopes to become reality. For one thing, the US economic recovery is still growing only modestly. A projected GDP gain of less than 3% for the year is hardly the sign of a booming economy. In Europe, the stubborn demands that Greece swallow new austerity measures practically guarantee that the Greek debt crisis will be a never-ending story, even if an agreement is reached in the next week or so.
The price rise is good news for refiners with access to WTI and other less costly varieties of crude. The $18 price differential between a barrel of Brent and a barrel of WTI kicks up margins because the refined product is sold based on the highest cost input. US drivers will feel the pinch quickly if Brent remains at this level or rises even more.
For more on the psychological impacts of rising oil prices, see our coverage here.