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The price of oil is increasing worryingly, will this affect global inflation

2024-06-25 09:13:20Biznes SHKRUAR NGA REDAKSIA VOX

The price of oil is increasing worryingly, will this affect global inflation

Crude oil prices snapped a two-week winning streak and rose to their highest level in nearly two months last week on optimism over summer fuel consumption in the Northern Hemisphere alongside a draw in US stockpiles. The two-week gains in crude oil prices represent a 7% gain for Brent and WTI futures.

Brent futures for September 25 jumped as high as $86.24 a barrel, the highest seen on May 1, on Friday before paring gains to open just above $84 a barrel on Monday. WTI futures for Aug. 4 hit $82 a barrel for the first time since April 30 last Thursday before retreating to $80.41 a barrel at Monday's open.

On June 3, the Organization of the Petroleum Exporting Countries (OPEC) and its allies agreed to extend oil production cuts of 2.2 million barrels per day until the end of September, with a gradual removal of production cuts starting in October . The decision initially depressed oil prices that week, but they rebounded rapidly from June 5 onwards.

Crude oil inventories fell by 2.5 million barrels to 457 million barrels in the week ending June 14, according to the US Energy Information Administration (EIA). Analysts had expected a decline of 2.2 million barrels that week. The inventory level is 4% lower than the five-year average for the same period. Total gasoline stocks fell 2.3 million barrels from a week earlier to 231 million barrels, marking the first decline since May 17. The EIA predicted that demand for distillate fuels will begin to increase in the second half of the year due to increased manufacturing activity.

Additionally, the US oil rig count has fallen for 4 straight weeks since the week ending May 31. The total was reduced to 485 last week, after peaking at 511 in the week ending April 19, according to Baker Hughes.

A report from JP Morgan Chase showed that fuel consumption rose to a post-pandemic high of 9.4 million barrels per day in the US in the week ending June 14. Fuel consumption is expected to continue to rise as the US approaches the July 4 Independence Day holiday, with 71 million Americans expected to travel.

Globally, oil demand rose by 1.4 million barrels per day due to the busy summer travel season in Europe and Asia. In particular, China, the world's largest oil importer, is expected to see a 1.7% increase in demand for the fuel, equivalent to 3 million tonnes, in 2024, according to Sinopec, China's largest refiner. Chinese retail sales rose 3.7% year-on-year, beating the 3.0% estimate and 2.0% from last month.

Geopolitical tensions may have also added to the upside pressure on oil prices. The war in the Middle East was at an escalating stage after Israeli officials declared that the country was ready for an "all-out war" with Lebanon's Hezbollah, prompting Hezbollah to threaten an "all-out" battle with Israel. The potential ripple effect of the conflict again raised fears of further disruptions in oil production and delivery.

Severe seasonal weather patterns may have also contributed to the increase in oil prices. The US National Oceanic and Atmospheric Administration determines that the Atlantic hurricane season will begin on June 1, posing risks to production and refinery operations.

Despite a pullback at the open on Monday, both Brent and WTI futures remained at nearly two-month highs, fueling concerns that global inflation could be lifted again by gasoline prices and could slow the pace of the rate cut. rates from central banks.

The latest data showed that inflation became persistent in several major European economies in May due to higher price pressures in utilities and oil. Rising crude oil prices could further cloud the inflation outlook. Despite the ECB's rate cut this month, the bank maintained a tough stance, stressing that further decisions will be taken on a "meeting by meeting" basis. Globally, most central banks, including the US Fed, tempered expectations of more than one rate cut this year as inflation remained well above its target level domestically.

Crude oil prices and inflation have been positively correlated since the start of the Ukraine-Russia war. Therefore, any sign of a revival in oil prices could weigh on stock market sentiment. Investors will closely monitor upcoming inflation data from global economies in the last week of the month.


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