July 14, 2024
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OIL & GAS

Opec Cuts Increase Inflation as Energy Prices Rise

Earlier this week, the International Energy Agency warned that oil markets were in a deficit that would deepen in the fourth quarter, according to OilPrice.com.

Saudi and Russian cuts that were just extended until the end of the year where the deficit may yet deepen, but it is already causing pain to energy consumers and reigniting inflation. Just when central banks thought they’d got it under control.

The latest inflation data from the United States is one recent example. A 10.6% price rise in energy drove overall inflation to an annual 3.7% in August. Core inflation rose by an annual 4.3%, prompting expectations that the Fed may reconsider its latest opinion to stop raising interest rates.

These inflation figures show how precarious any economic balance is, even in the world’s largest economy, when energy markets are imbalanced. They also show that forecasts of imminent peak oil demand are better taken with a pinch of salt.

The Wall Street Journal reported this week that U.S. industries dependent on hydrocarbons are feeling the pinch from higher fuel prices. Construction, transport, and farming are all suffering because of higher fuel prices, especially diesel. For all the ambition that EV advocates demonstrate, electric alternatives to diesel-fueled trucks have yet to present themselves on a scale and at a price and range worth builders’, freighters’, and farmers’ while.

With gasoline, the price jump has mostly to do with the latest rise in crude oil prices. With diesel fuel, however, the situation is grimmer. Global inventories of middle distillates, including diesel, heating oil, and gasoil, are palpably lower than they usually are at this time of the year. On top of that, there is not enough refining capacity to remedy matters. Neither is there enough sour crude.

Reuters’ John Kemp reported this week that distillate fuel inventories in the United States were 16% lower than the ten-year seasonal average in August this year. That 16% translates into 23 million barrels.

In Europe, inventories of middle distillates were 8% lower than the ten-year average for August. That 8% translates into 35 million barrels.

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