Oil Prices Poised to Touch $100 Mark Amidst Production Cuts and Geopolitical Tensions: Identifying the Most Affected Parties

Analysts Notebook wrote a column · Sep 19, 2023 15:35

The stock market edged lower this week due to concerns that major central banks may continue to be hawkish in light of persistent inflation. Meanwhile, the oil market rallied as Brent crude exceeded $95 per barrel for the first time since November.

Source: moomoo

Since mid-June, crude oil prices have surged by approximately one-third following a joint effort by Saudi Arabia and Russia to limit supplies and boost prices. The rise in oil prices has added further pressure on central bankers worldwide as they work to address the issue of rising prices.

Central Bankers

The surge in energy costs looks set to boost inflationary pressures, complicating the task facing leading central bankers, many of whom have just presided over a punishing string of rate increases aimed at subduing price gains. It'll be a big week for monetary-policy decisions: the Federal Reserve will establish its policy on Wednesday, followed by the Bank of England on Thursday, and the Bank of Japan on Friday.

The main story as we start the big central bank week has been the relentless rise in oil prices," said Deutsche Bank AG macro strategist Jim Reid. "Given those fresh signs of inflationary pressures, investors moved to price in that interest rates would remain higher for longer into 2024."

Biden Officials

The jump in oil also poses a challenge for the Biden administration ahead of presidential elections, with costlier crude feeding into more expensive gasoline, a key issue for some US voters. Average retail prices of the key motor fuel are already at a seasonal record.

Consumers

Rising crude prices could directly impact consumers through higher prices at the gas pump, which could further pressure cash-strapped households. The nationwide average cost of a gallon of unleaded gas was $3.88 on Monday, 20 cents higher than at the same time last year.

Industries

The strength is being led by the physical markets. One of the clearest examples is Azerbaijan's flagship Azeri Light crude, which was trading close to $100 a barrel Friday as strong profits for turning crude into diesel mean processors are paying bumper premiums for grades that produce a lot of the fuel.

This tightening of the market has raised speculation that oil prices could reach $100 soon, with industry giants such as $Chevron (CVX.US)$'s CEO, Mike Wirth, and even traditional bears at $Citigroup (C.US)$ making predictions.

Risks of a short-term spike to $100 may be rising with the current momentum but we have little conviction it would be sustainable," said Charu Chanana, market strategist at Saxo Capital Markets Pte. "Higher inflation could mean tighter monetary policies and OPEC+ can't control the demand side."

Source: Bloomberg, Investopedia, Business Insider

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ごにょにょ : High crude oil prices are troublesome

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