U.S. crude oil prices have surged past $90 a barrel, triggering worries about accelerating inflation and its potential impact on an economy already grappling with the Federal Reserve’s aggressive interest rate hikes.
Surge in Oil Prices
The recent rise in U.S. West Texas Intermediate crude (WTI) for October delivery, settling at $90.16, marked the first close above $90 since November 2022. This spike comes amidst traders’ expectations that oil supplies will remain constricted for the foreseeable future. The pressure of high oil prices is felt across global economies as it raises transportation and manufacturing costs while weighing on consumer spending. Consequently, more expensive oil has taken its toll on drivers, with U.S. consumer inflation in August seeing its most significant spike in 14 months due to rising fuel costs. Market participants even predict the possibility of oil prices touching $100 per barrel by year-end.
Impact on Global Oil Supplies
OPEC+ top producers, particularly Saudi Arabia and Russia, have played a significant role in tightening oil supplies by extending their 1.3 million barrel per day output cuts through to the end of the year. Additionally, U.S. crude production has stagnated in the backdrop of a 17% reduction in drilling rigs over the past year. The drive for near-term supplies has resulted in a likely decrease in U.S. oil inventories as refiners ramp up operations to meet the soaring demand for gasoline and diesel.