Oil prices surged on Tuesday, stoking fears over economic repercussions as the global benchmark, Brent, edged closer to $100 per barrel. West Texas Intermediate (WTI) settled at $90.39 per barrel, while Brent also saw a fractional increase, closing at $93.96 per barrel.
This steady uptick in oil prices, observed since late June, can be attributed to output reductions enforced by OPEC+ and independent production cutbacks by Saudi Arabia, coupled with export limitations from Russia. Adding to the strain, refineries in the Persian Gulf are expected to further constrict supply by ramping up regional crude consumption for diesel refinement.
Economists at JPMorgan underscored the potential for Brent crude prices to escalate to a staggering $120 per barrel should supply constraints persist. CEO of Economic Research, Bruce Kasman, and his team cautioned that such a scenario could have a detrimental impact on the global Gross Domestic Product (GDP). Their estimates suggest that recent fluctuations in oil prices could lead to a 0.5%-point reduction in annualized growth over a span of two quarters. Nevertheless, Kasman anticipates a drop in crude prices to $86 per barrel in the next quarter, indicating a potentially short-lived ‘oil shock’.
Goldman Sachs economists, on the other hand, contended that the US economy can manage higher oil prices, albeit with a slight adjustment to their GDP projections. They project that alterations in energy prices will result in a 0.3% dip in GDP and a 0.5% decrease in consumption growth over the forthcoming two quarters.
As oil prices ascend, the national average for gasoline took a dip to $3.84 on Tuesday. However, the surge in energy costs is translating to elevated prices for goods and services, consequently impeding consumer demand. In the United States, this surge is particularly felt in the aviation industry, with jet fuel prices soaring over 40% on the Gulf Coast since early July.
In totality, the mounting oil prices are a cause for apprehension, posing a significant threat to an already delicate economic recovery. Market analysts and policymakers are closely monitoring the situation, looking for signs of stability or potential intervention measures to mitigate the impact on the global economy.
Source: Yahoo Finance
