Chart of the Week: Lower, but not low oil prices

Oil prices are often described as a rollercoaster ride and recent trends reinforce this metaphor. After hitting over US$104 per barrel on October 30, the West Texas Intermediate benchmark fell to US$86 on November 10 for a drop of 17% in just a few days.

It’s tempting to reduce these shifts down to a single cause, but we should always keep in mind that there are many moving parts affecting oil prices including storage levels, demand projections, physical disruptions, risk premiums, geopolitical events, seasonal shifts, production levels, OPEC policy, and so on.

With that said, let’s go ahead and point to a single cause to explain what’s been happening: the assumption that the U.S. will refrain from ramping up military action in the Middle East (what the President referred to earlier this month as giving Iran “the hammer”) as it shifts to a focus on economic measures such as blockading Iran.