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What's going on?
The price of oil outside of the US hit a two-year high on Monday! Among other things, oil prices affect many stock prices and peoples cost of living so they are closely watched by markets.
What does this mean?
There are actually two different types of oil that are mainly traded: Brent and West Texas Intermediate (WTI). Brent oil is more popular outside of the US, WTI is typically traded within the US. Their prices usually move roughly in tandem, but Brent has outpaced WTI recently (Brent is at its greatest value compared to WTI since August 2015). Part of the reason for the bigger than usual difference is that investors remain fearful of overproduction within the US.
More broadly, demand from China and production cuts by OPEC members (largely Middle Eastern countries) are helping to push both oil prices up. Also, as part of a political dispute, Turkey has threatened to block oil from Kurdistan entering the international markets (which would further limit global supply).
Why should I care?
For markets: Higher oil prices should encourage more supply thus putting downward pressure on the prices.
As the oil prices climb, it should once again encourage drillers to ramp up their drilling (as they can turn a higher profit), which would result in greater supply. So, there may be a ceiling to how high the oil prices can go at least unless demand for oil picks up considerably.
The bigger picture: OPECs efforts to cut production have been more successful than many investors anticipated.
Almost a year ago, OPEC members agreed to limit their production in order to help boost the oil price. OPEC has made similar agreements in the past, but many member countries were prone to cheating (i.e. producing more oil than they said they would). Compliance has not been perfect this time around, but its been better than many thought which has supported the oil price.
Originally posted as part of the Finimize daily email.
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