International oil prices are approaching $100 again, just at a time when the central bank of the United States and surely many central banks more are preparing to put an end to the upward cycle of interest rates, which began after the inflationary rebound.
This Monday the price of Brent oil reached $96 per barrel, while WTI prices exceeded $90, something not seen since November of last year.
The oil market celebrates the Petroleum Congress in Calgary, Canada this week for five days. The main market players attend the meeting, especially the Organization of Petroleum Exporting Countries (OPEC) and its strategic partners, an oil cartel that has been called OPEC+
Cuts were necessary
Against this backdrop, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman said on Monday that OPEC+ cuts to oil market supply were necessary as international energy markets need moderate regulation to limit volatility.
The official highlighted the factors that, from his point of view, impact the instability of the oil market: uncertainty about Chinese demand, European growth and the measures of central banks to confront inflation.
Just last September 5, Saudi Arabia and Russia extended voluntary supply cuts of a combined total of 1.3 million barrels of oil per day until the end of the year.
In the facts, Oil prices have been rising in recent months amid supply cutsgenerating concerns in large consumer countries, such as the United States, about possible economic damage.
The International Energy Agency (IEA) said the cuts will mean a substantial market deficit during the fourth quarter.
Production cuts from Saudi Arabia and Russia could lead to a deficit of 2 million bpd in the fourth quarter, analysts say, and a subsequent reduction in inventories could leave the market exposed to further price increases in 2024.
This Monday Citibank projected that Brent prices could exceed $100 a barrel this year. For his part, Chevron CEO Mike Wirth also said in an interview with Bloomberg that he believes that crude oil will exceed $100 per barrel.
It is notable that this oil price rally has occurred even amid concerns about lower demand from Europe and China as those economies grapple with a sharp slowdown, demonstrating how tight the oil price has become. supply side in the market.
China, considered the engine of oil demand growth, remains arguably the biggest risk due to its slow economic recovery from the pandemic.
This week, the focus will also be on central banks, with the US Federal Reserve’s interest rate decision and expected economic data from China. There is a growing consensus that maximum interest rates are not far awaysince inflationary pressure has, in general, been successfully mitigated.
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Stagflation, the possibility
Another possibility regarding the effects of international oil prices would be a process of stagflation in the world; that is, economic stagnation with inflation.
At the moment it is not a generalized scenario nor much explored by analysts, but they have already considered it on several occasions in light of the market performance and above all due to the insistence of OPEC+ to maintain production cuts, even to deepen them. . This confrontation in the oil market is leaving the global economy as a victim.
Stagflation would be one of the worst economic scenarios, because fighting two economic phenomena at the same time is little explored until now by the world’s central banks.
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