The price of oil is steadily advancing towards $100 a barrel, a mark it hasn’t hit in nearly a year, presenting fresh inflationary challenges for monetary authorities.
Brent crude, the global standard, surged past $95 per barrel today, marking its highest since November 2022.
The rising oil price is attributed to worries about a supply shortage, especially after recent production reductions by Saudi Arabia and Russia, which are set to continue until year’s end.
Kyle Rodda, a top financial market analyst at capital.com, notes:
While it might seem technically overpriced, the upward trend remains powerful, backed by both supply and demand factors fueling the surge. The main highlight is the anticipated supply deficit as indicated by OPEC+ recently.
According to the cartel, they foresee a shortage of 3 million barrels daily in the year’s last quarter, which would be the most significant since 2007. The escalating oil price is leading to increased yields, particularly in long-term investments, though stock markets have shown unexpected fortitude.
Brent crude started 2022 at under $80 per barrel and surged to nearly $130/barrel following Russia’s invasion of Ukraine in March, contributing to the inflation spike last year.
While oil prices did retreat for a time, they’ve been on an upward trend since late June, causing a rise in UK petrol and diesel costs.
The escalation in oil prices could prolong inflation, precisely when monetary authorities are contemplating halting their phase of increasing interest rates. While the US Federal Reserve might maintain the current borrowing rates tomorrow, the Bank of England could opt for another rate increase on Thursday.
With $100 per barrel approaching, Bjarne Schieldrop, the chief commodity analyst at SEB, anticipates a dampened oil demand if prices exceed that benchmark.
“Saudi Arabia and Russia have a firm grip on the oil market. Globally, the market is either balanced or facing a deficit, and both crude and product reserves remain low.
Given the tight situation in both supply and storage, oil prices should have minimal downward movement. It’s highly probable that Dated Brent will surpass USD 100/b. It’s currently less than USD 5/b shy of this milestone, and a slight push can get it there.
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