Here Are Things To Know About The Recent Rise In Oil Prices
Oil prices have risen, complicating the global fight against inflation. Drivers are paying more for gasoline and truckers and farmers more for diesel.
The spike is helping Russia pay for its invasion of Ukraine and weather sweeping Western sanctions aimed at crushing the country’s wartime economy.
Above all, Saudi Arabia’s decision to cut back how much oil it sends to global markets has elevated prices. The Kingdom has slashed production by 1 billion barrels a day.
The cutback was announced in July, with the decision to extend the cut through the end of the year revealed this month. Russia has also extended its own cut of 300,000 barrels a month.
Saudi Arabia Could Add Barrels Back If …
Simply, tighter supply pushes prices higher. On Monday, international benchmark Brent oil traded at just under $94 per barrel, up from $74 before the Saudi cut was first announced.
While oil prices can be volatile and might briefly top $100 in the coming months, they’re unlikely to stay there, said Jorge Leon, senior vice president for oil markets at Rystad Energy.
The expert expects prices to stay in the low $90s on average in the last three months of the year. That’s still high historically, he said, supported by a “resilient” demand for fuel.
Nonetheless, Saudi Arabia will review the cuts each month and could add barrels back if prices cross levels that could seriously exacerbate inflation in countries purchasing oil, Leon added.
Financial Speculation Also Pushing Oil Prices Higher
Obviously, the world’s second-largest oil supplier wouldn’t want inflation to rise as it could kill economic growth – and lower growth ultimately means lower oil demand.
On top of the substantial cutbacks, there are a string of other factors affecting oil prices, including the demand – which is picking up along with rebounding travel following lockdowns.
Another factor pushing the rates higher is financial speculation and it appears investors are piling into the oil market with bets that prices will rise.
Gary Peach, oil markets analyst at Energy Intelligence, has blamed “a flood of speculative money”, stressing “fundamentally there is still plenty of oil … to meet demand for now.”