Major Oil-Producing Countries Are Tightening The Tap

Major Oil-Producing Countries Are Tightening The Tap
Stéphane Renevier, CFA

3 months ago2 mins

What’s going on here?

A key measure of oil prices rose above $90 a barrel for the first time since November, as major oil-producing nations extended their supply cuts.

What does this mean?

In a bid to prop up oil prices, Saudi Arabia and Russia are keeping their oil taps turned down a bit. The countries just extended their production cuts until December, which means they’re pumping out less oil than they could. And that’s a decision that caught many off guard: investors had already been bracing for a bit of a squeeze in supply, especially with some key countries producing less oil and Saudi Arabia making extra cuts back in July. But this mega-lengthy cut means the pinch might be even tighter than expected. As a result, Brent oil, a global price benchmark, has jumped to its highest level in ten months. And it’s not just oil feeling the heat: the Energy Select Sector SPDR Fund, which keeps tabs on big energy players, has also seen a boost.

Oil prices

Why should I care?

For you personally: Higher prices at the pump.

When oil prices rise, so does the cost of gasoline. And that’s bad news given that we’re currently at an average of $3.80 per gallon, nearing the dreaded $4 mark. That’ll only add to the cost of living for regular folk – which doesn’t bode well for President Biden, as rising gas prices can be a seriously sore spot for voters.

Gas prices

The bigger picture: The specter of stagflation.

Rising oil prices can fan the flames of inflation, driving the cost of everyday items skyward. And if inflation keeps climbing, central banks might hike up interest rates further, making borrowing more expensive. That could lead to a nightmare scenario: stagflation, where we see stagnant growth paired with high inflation. But it’s not all gloomy. The economy has shown resilience so far, and there’s been some solid evidence that other components of inflation might actually be cooling down.



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