Recent developments in oil markets

James Hamilton writes on Econbrowser: 

What's behind the rise in the price of Brent? Some financial reports have stressed rising tensions with Iran. However, one objective, if imperfect, quantitative measure of that comes from the market price of Intrade's contract for an imminent attack on Iran. This has moved relatively little since April.

Another reason may be that total world oil production (including natural gas liquids and biofuels) has been stagnant since January, though at a level 3-1/2 million barrels/day higher than during the Libyan cutbacks in 2011, and 2 mb/d above the pre-Libyan peak in January 2011.

I believe that the most important factor driving oil prices recently has been changing assessments of how strong the world economy will perform over the next 6 months. The decline in oil prices in April-June and the subsequent rebound is mirrored in stock indexes like the S&P500. A stronger economy should mean both higher corporate profits and higher demand for oil. Markets are apparently betting that favorable economic trends in places like the U.S. and China are enough to outweigh the discouraging numbers coming out of Europe.