The Tumultuous Tango of Oil and Inflation as Black Gold Eyes $100 a Barrel

OIL prices 09-17-2023 by

As the world spins, its pulse races with the escalating oil prices, skirting tantalizingly close to the $100 mark. With a sharp ascent of nearly 30% since summer, this surge is feeding into worldwide trepidation about inflation. And what, who, are the culprits? Production trims by our Russian and Saudi counterparts, coupled with China’s voracious appetite for black gold.

Brent crude, that ever-watchful sentinel of oil price trends, leaped to a startling $94 a barrel last week—a height it hasn’t touched in nearly a year. Recollect, if you will, a more moderate $72 a barrel back in June. One might even draw parallels to the dramatic swell we observed post-Russia’s Ukraine maneuver.

Across the pond, West Texas Intermediate, a sprightlier cousin of Brent, vaulted from a modest $67 to a commanding $90 within the same time frame.

On the misty isles of the UK, motorists are experiencing a pinch at the pump, with fuel prices inflating by 10p per liter since our reference point in June. RAC, the venerable motoring organization, puts the average unleaded tab at £1.52 per liter, a climb from June’s £1.43.

Meanwhile, in the sprawling US landscapes, the gas bump is even more pronounced. Owing to a lighter tax burden, gasoline prices leaped a robust 10%, hovering around $3.90 a gallon. The skies are not spared either; a rejuvenated aviation sector across the US, Europe, and China has sent jet fuel prices soaring, marking a 50% increment since early May.

Saudi Arabia, in a strategic sleight, prolonged its 1.3 million barrels per day cut, causing a ripple in global reservoirs. Russia’s own trims, echoing similar sentiments, bolstered OPEC’s ambitions of flirting with that alluring $100 per barrel figure.

The International Energy Agency (IEA), however, has a word of caution. Their clarion call highlights a looming “significant supply shortfall” courtesy of the decisions by the leading OPEC+ duo, igniting the specter of erratic price swings. Adding to the fray, OPEC recently rang the alarm on a potential 3m bpd deficit—potentially the gravest shortage we’ve seen in over a decade.

Yet, amidst this maelstrom, OPEC’s gaze is also fixed on the horizon. The IEA postulates a peak in oil demand before the 2030 curtain call, driven in no small part by the accelerating embrace of renewables.

“Oil’s relentless surge seems unbridled,” muses Stephen Innes of SPI asset management.

China, the globe’s premier oil connoisseur, along with the escalating fuel expenses, casts a shadow over central banks’ Herculean efforts to rein in surging inflation—currently mocking the humble 2% target.

Remember the deflationary respite we enjoyed earlier this year, courtesy of plunging oil prices? Well, the pendulum swings, and a counter-rise might well dampen the latter half of 2023 and beyond.

Last week, the European Central Bank unveiled its 10th consecutive interest rate hike, hinting at a possible pause. Yet whispers from its chambers suggest another hike might still be in play. The Federal Reserve, after observing a dip in core inflation, still leaves the door ajar for another potential rate crescendo come November.

Edward Moya from OANDA sums it up: “The Wall Street waltz is all about oil these days. Few contest the Opec+ output decision’s impact in ensuring a snug oil market for Q4.”

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And as the world waits with bated breath, the black gold continues its tempestuous dance.


Disclaimer: This article is intended for informational purposes only. It should not be considered financial or investment advice. We do not hold any form of equity in the securities, cryptocurrency or commodities mentioned in this article as of 09/17/2023. Always consult with a certified financial professional before making any financial decisions.

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