Oil Prices Surge As Inflation Fears Are Re-emerge
EDITOR'S NOTE: Oil prices have surged to their highest level in months as Saudi Arabia extends production cuts, igniting fears of a fresh bout of inflationary pressures in the U.S. The benchmark West Texas Intermediate crude hit $82 a barrel, the highest since mid-April, while Brent crude rose 3% since the beginning of the year. The major supply cuts by OPEC+ have tightened the market, leading to a rise in gas prices, which have already jumped over 8% in the last month. Stubborn inflation continues to run high, posing challenges for the Federal Reserve's efforts to control price pressures and achieve a "soft landing." The threat of escalating inflation looms large as the Fed grapples with critical decisions amid uncertain economic waters.
Gas, oil prices rising amid Saudi production cuts
Oil prices surged on Monday to the highest level in months after Saudi Arabia extended production cuts for another month, threatening to keep inflation in the U.S. abnormally high.
West Texas Intermediate crude, the U.S. benchmark, hovered around $82 a barrel during afternoon trading, the highest level since mid-April, when prices rose to more than $83. Brent crude – the international benchmark – was up to about $85.30 a barrel, a 3% increase from the start of the year.
The spike in prices follows major supply cuts by the coalition of oil-producing countries led by Russia and Saudi Arabia, known collectively as OPEC+. The group already had in place oil output cuts of about 3.66 million barrels per day when Saudi Arabia announced that it would extend the cuts into September, further constraining supply.
Gas prices have already started to march higher as a result.
The average cost of a gallon of regular gasoline was about $3.89 on Monday, according to AAA, up more than 8% from the same time one month ago. That is the highest level since October 2022, although prices remain below the record high of $5.01 notched in June 2022.
More expensive oil – and gasoline – threaten to exacerbate stubborn inflation that is still running about two times higher than the pre-pandemic average.
"If gasoline prices continue to climb higher, the Fed will find it difficult to declare that inflation has peaked given the importance of gasoline prices with regard to consumer perceptions of long-term inflation," said Quincy Krosby, chief global strategist for LPL Financial. "It becomes ‘sticky’ as consumers invariably – and historically – begin to anticipate higher inflation over a three-year period as prices at the pump rise."
