Market Overview

Brent and the U.S. Begin to Recover From Hurricane Sandy

Brent and the U.S. Begin to Recover From Hurricane Sandy

Brent crude oil is slowly climbing back from a steep drop last week as hurricane repairs push forward and oil refineries resume normal output. The damage from Hurricane Sandy is still quite severe, but major cities are slowly restoring power and oil refineries are repairing damage and returning to normal operations.

As the U.S. recovered from the storm, Brent prices recovered as well. The commodity traded at $108.33 on Tuesday morning.

The U.S. presidential elections take place on Tuesday and while Americans choose between a very close race, many are worried about the effect its outcome will have on one of the largest economies in the world. A recent congressional discussion about the ‘fiscal cliff' coupled with the result of the election could have devastating effects on the American economy.

The ‘fiscal cliff' is a bundle of spending cuts and tax increases that will kick in if the new leader cannot find a long term solution to the country's deficit. Many are worried that a conflicted result, for example an Obama presidential victory but republican victory in congress, will cause the country to sink into recession.

While American elections hang in the balance, the overall global economies continue to weigh on Brent prices. Europe has fallen into a deep financial crisis, and data from China has pointed to a slow road to economic recovery. With the world's largest oil consumers, the US and China respectively, struggling to expand analysts are predicting oil reserves and a Saudi Arabian commitment to providing crude oil to more than meet the future demand.

However, tension in the Middle East has been recently escalating and causing investors to worry about supply interruptions from that region. According to CNBC, Iran has threatened to close the Strait of Hormuz and thus blockade nearly 40 percent of the world's seaborne oil. The threats were made in order to prevent a military strike from Israel or the U.S., both of whom are working to prevent further advancement to Iran's nuclear program.

In the unlikely event of a blockade at the Strait of Hormuz, some analysts have said oil prices could rise as high as $120 per barrel.


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