Three consecutive weeks on the rise and new annual highs. The barrel of Brent was already around $95 on Tuesday, the highest level since the months after the outbreak of the war in Ukraine. A price that has not been seen since November 2022 and that has increased by 30% in just three months. Some analysts, such as those from Goldman Sachs, as well as the oil company Chevron, speak openly that the psychological level of $100 will soon be surpassed.
In the current situation this increase could be very harmful. Indeed, a rebound in energy prices could once again increase inflation in Western countries and force central banks (mainly the European Central Bank and the US Federal Reserve) to continue raising rates, which which could further depress consumption and investment.
“The rise in oil prices is clearly another blow to central banks. While we know that this increase is not the only factor to consider when analyzing inflation, its impact on economic data is immediate. And it is not very convenient when you are dependent on data...”, Mirabaud analysts comment in a note.
How did we get here? “The demand for oil this year has grown a lot. Despite rising interest rates in the West and despite China's macroeconomic problems, oil consumption data shows that demand is strong. When we look at the mobility indicators, for example, road traffic around the world has recovered the level of 2019 and aviation, despite being below the pre-covid level, has grown significantly this year,” explains Jorge León. , vice president of the consulting firm Rystad Energy. “Although Chinese industrial activity and real estate are weak, transportation trends remain quite positive. In addition, China has continued to accumulate oil inventories for months and its refineries have been operating at full capacity, with crude oil imports at a near record level,” notes Francisco Blanch of Bank of America.
There is a significant divergence of opinion between producers and consumers. While the International Energy Agency earlier this month suggested that demand could peak before 2030, the cartel of oil exporting countries (OPEC) does not believe this will happen. “It is a risky and unworkable narrative to think that fossils are near their end. These calls for the peak have never materialized,” the oil cartel countered. Hence, OPEC does not hesitate at all when it comes to announcing new production cuts, which allows its members to increase their budgetary income after the pandemic.
“Saudi Arabia's voluntary cuts of one million barrels per day, initially planned for July and then extended until the end of the year, have reduced the supply of global crude oil,” recalls Jorge León. A market deficit estimated at 3 million barrels per day. And Western countries do not have reserves to compensate for this imbalance, because global inventories have fallen to 13-month lows.