When nobody was looking, Brent Crude Oil prices crept above $70 a barrel on Friday afternoon, closing at 70.49 and having peaked at 70.78. While this seems like an obscure financial curiosity that matters only to your wealthy uncle Dave — you should probably sit up and take notice.
For anyone unfamiliar with the commodities exchange, a quick catch-up primer.
There are two types of crude oil futures traded on the exchange. There is Brent, which comes from the North Sea near the UK, and WTI Crude (West Texas Intermediate) which you can pretty much guess where that comes from. There are other types, but let’s stick to the two main ones. Brent and WTI are traded on the Intercontinental Exchange and New York Mercantile Exchange, respectively. Trading crude oil futures is universally agreed upon as one of the most difficult and risky things to do in all of commodities speculation. The price is notoriously hard to predict due to the variety of factors that influence its price.
Got it? Good, let’s move on.
Ok, so Brent is trading just north of $70 a barrel. So what? So this. Anyone remember the last time Brent traded above that price? Nobody? June of 2014 when it was at just over $114 a barrel. Following that, the global oil glut caused the price to plummet drastically, bottoming out at around $38 a barrel the next year. In case you’re keeping score, WTI followed the same pattern (they usually match one another.)
What caused Brent to drop in value like that? Simple, investors had made their money and got out and coincidentally did so right around the same time oil producers ramped up production because they were getting $114 a barrel. Nobody wanted it, there was an oversupply, wango tango, you’ve got yourself a drop in oil prices. The oil glut was so bad at that point, that some exchanges started trading futures on oil storage. True story.
Let’s fast forward to right now. We’ve got Brent crude shooting up from $46.65 in June to $70.49 in January. Adjust that by about a month and $5 or so, and you’ve got WTI. It doesn’t take a Billy Ray Valentine to tell you what’s going to happen next.
Oil, and consequently gasoline, is about to get stupid expensive.
Investors saw what happened in 2011-2014 when everyone made dumb money on oil futures and they are likely going to play the long game, looking to turn $30 into $120. This will make oil more expensive for the time being, thus cranking up the price of everything — including gas.
Anyone know who usually gets blamed for gas prices? Give you a hint, it rhymes with “Breshident.”
Your average American has absolutely no idea how gas prices are determined because why would they? All they know is there’s someone in the White House promising to make everything awesome and $4.50/gallon for unleaded is decidedly not awesome. Anyone remember who got blamed the last time gas prices shot up?
It’s well established that Donald Trump supporters are not terribly bright. They elected a reality show star and believed he would do all kinds of stuff that 10th grade Social Studies can tell you is absurdly impossible. They have no idea how any of this works and are the same people who complained about “Obama making gas expensive” or whatever.
Trump wants to get reelected in 2020. Does anyone want to take odds on whether or not he can do that when John Q. Taxpayer is paying $90 to gas up his truck?
Taking a step back, things are kind of worse. Soft commodities like coffee, sugar, and cocoa have been dropping in price for the last six months. This is when investors love to throw their money in. Watch what happens when those prices shoot up and it costs three times as much to import it. Ever had a $6 cup of coffee knocked back with a $12 chocolate muffin? You will very soon.
Throw this all together and you’ll see that Trump is no longer going to be able to ride the coattails of the incredible economic recovery from the Obama Administration. (The same recovery Republicans have been telling you for four years didn’t exist.) Things are about to get ugly in the American economy, and it’s doubtful the “Dealmaker In Chief” is going to be able to fake news his way out of it.
And that, ladies and gentlemen, is why you should pay attention to Brent Crude prices.