28 days ago • 2 mins
What’s going on here?
Crude oil could cost over $150 a barrel if conflict in the Middle East intensifies, according to the World Bank’s warning on Monday.
What does this mean?
The World Bank had expected the tepid global economy to drag commodity prices down by about 4% next year, with oil prices dipping to around $81 a barrel from this quarter’s $90. But the longer conflict in the Middle East continues, the more volatile energy and food prices may be. So far, oil prices have held up relatively steady. Yet in the worst-case scenario – that’s if major producers like Saudi Arabia limit their exports of the slippery stuff – prices could fly to between $140 and $157 a barrel. And even if less extreme supply cuts take hold, oil could still hit up to $121.
Why should I care?
For markets: The tide that lifts all prices.
European gas prices have already picked up this month, with investors concerned that supply may get scarce. And because energy is a key cost for every business, the price of goods and services across the board will likely go along for the ride if gas prices keep ticking upward. That’s a recipe for higher inflation and interest rates, the opposite of what the languishing global economy needs.
The bigger picture: One man’s trash is another’s treasure.
Big US oil companies will be foaming at the mouth thinking about the prospect of bloated oil prices. Major firms like Exxon and Chevron have recently made hefty acquisitions, underpinned by the belief that the world will still rely on oil for years to come. What’s more, the deals are designed to make the massive companies more flexible by enlisting smaller, local resources, allowing them to react faster when the volatile market shifts. So if the World Bank’s worst-case scenario does come true, you can bet Big Oil will be ready to act.
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