Two Suckers

Oil prices have consistently kept moving  up over the past quarter, with Brent now almost $70 per barrel.

The rise is due to coordination between Saudi, Russia and Iran, combined with strong demand linked to the recovery in global growth. 

The reduced investment over the past few years may also be taking a toll, as shale oil/gas has far sharper depletion rates and thus greater capital intensity. 

A rise in oil prices also sucks out liquidity from markets. The world consumes about a 100 million barrels of oil per day. Assuming 100 days of inventory in the system, a $20 rise in price needs $200 billion of additional working capital. Some of this liquidity will get diverted from financial markets.

Rising oil prices combined with a tightening Fed is not normally good for financial assets.

Both suck liquidity out of financial assets

wrote Akash Prakash,Amansa Capital

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