With the continuous ascent of Brent crude oil prices, trading at approximately $90 per barrel for the second consecutive day on Wednesday, marking a 25% increase since June, experts are now anticipating the possibility of the price reaching $100 per barrel, Leadership reports.
This surge is causing notable reverberations across global stock and bond markets, raising concerns about higher fuel prices at the pump and increased manufacturing costs. These concerns may prompt diplomatic efforts to boost the oil supply and mitigate potential inflationary effects on the global economy.
Saudi Arabia and Russia, the two countries responsible for this price hike, recently announced their decision to extend their combined oil production cuts of 1.3 million barrels per day through the end of the year. The duration of these cuts has surprised market observers, with Saudi Arabia even hinting at the possibility of implementing deeper cuts in the coming months.
Nadia Martin Wiggen, a commodities analyst at Pareto Securities, suggested to Bloomberg that Brent crude could indeed reach the $100 per barrel mark, a level it frequently surpassed in the initial months following Russia’s invasion of Ukraine.
There are factors potentially counteracting this price surge, including concerns about China’s slowing economy reducing oil demand, as well as Saudi Arabia’s reluctance to see crude prices rise to triple digits and potentially harm the global economy, according to Jorge León, an economist at Rystad Energy.
Rising oil prices could also lead to increased fiscal tightening, particularly in the United States, in an effort to combat inflation, as noted by León. Investors have responded by selling off government bonds, including 10-year Treasury bills, amid fears that central banks may need to maintain a hawkish stance on interest rates to counteract the inflationary impact of higher energy prices.
Moreover, Iran has significantly increased its oil exports since Saudi Arabia initiated production cuts this summer. There have been reports of back-channel talks between Tehran and Washington to ensure a steady flow of crude oil to compensate for supply reductions elsewhere. Venezuela, another oil-exporting nation under sanctions, is reportedly seeking assistance from China to revive its production.
In the United States, the Biden administration has indicated that one of its primary options to counteract Saudi cuts is to increase oil imports from other countries, with Iran and Venezuela being seen as promising candidates. Domestic shale oil producers are unlikely to fill the gap in the short term, and tapping into the nation’s strategic petroleum reserve is also considered improbable, given the reserve’s depleted state, as it was last seen at such levels in the 1980s, according to León.