Oil Is Getting Pricier And Pricier

Oil Is Getting Pricier And Pricier
Reda Farran, CFA

2 months ago2 mins

What’s going on here?

A key benchmark of US oil prices hit its highest level in over a year.

What does this mean?

West Texas Intermediate (WTI) crude oil’s price ticked up by 3.6% on Wednesday evening, landing above $93 a barrel for the first time in over a year. That came on the heels of a report that showed supply at a key US oil storage site hit its lowest level since July 2022, with inventory verging close to the minimum needed for the site to function properly. This bigger-than-expected dip is the latest evidence that supply cuts from Russia and Saudi Arabia – set to stay put for the rest of the year – have been piling pressure onto the market. And with OPEC (the group of major oil-producing nations) forecasting earlier this month that global markets may face the biggest deficit between supply and demand in over a decade, many market watchers see a $100-a-barrel price tag as inevitable.

WTI futures

Why should I care?

For markets: Just when we thought we were out, oil pulls us back in.

Hedge funds are backing that $100 prediction, pulling their bets on oil futures up to an 18-month high. If they’re right, the price of oil will have climbed over 40% in the second half of this year. That’s more than enough to light up inflation, and could potentially undo central banks’ hard-won progress and force them to keep economy-busting interest rates higher for longer.

The bigger picture: Green linings.

Still, the International Energy Agency may be cheering on this whole debacle, since higher oil prices could encourage the world to use more alternative energy sources. After all, the agency’s latest assessment concluded that if governments want to limit global warming to 1.5°C by 2050, demand for fossil fuels will need to fall by a quarter by the end of the decade. Specifically for oil, that’s a plunge from today’s 100 million barrels a day to 77 million by 2030 – and that could be a long shot.

IEA oil demand growth forecast
Source: The International Energy Agency


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