As Brent crude oil price continued to rise, trading on Wednesday around $90 a barrel for the second straight day, and now up 25 per cent since June due to the prospect of more production cuts by leading oil exporters, analysts have predicted the price may hit $100 a barrel,leadership reports.
The surge is sending ripples through the global stock and bond markets and the prospect of higher prices at the pump and throughout manufacturing may spur diplomatic efforts to increase supply and tamp down any inflationary effects on the global economy.
The two countries behind the price hike Saudi Arabia and Russia said on Tuesday that they would extend their oil production cuts equivalent to a combined 1.3 million barrels a day through year-end.
The duration of the cuts surprised market watchers, as did Saudi Arabia’s hint that it may make even deeper cuts in the coming months. Nadia Martin Wiggen, a commodities analyst at Pareto Securities, told Bloomberg that Brent could hit $100 a barrel, a level it frequently surpassed in the first months following Russia’s invasion of Ukraine.
China’s sputtering economy could sap demand for oil, keeping prices down and Saudi Arabia has little interest in seeing triple-digit crude prices crash the global economy, Jorge León, an economist for the research firm Rystad Energy, told DealBook.
“Higher oil prices will only increase the likelihood of more fiscal tightening, especially in the U.S., to curtail inflation,” León said.
Investors have sold off government bonds, including 10-year Treasury bills, over the past two days on fears that central banks will be forced to stay hawkish on interest rates to blunt the inflationary effect of higher energy prices.
Means, Iran’s oil exports have surged since Saudi Arabia began cutting its production this summer, and Bloomberg reported last week that Tehran and Washington have held back-channel talks to keep crude flowing to make up for supply reductions elsewhere. Venezuela, another exporter under sanctions, has reportedly turned to Beijing to help it revive production.
In the US, the Biden administration said:“the only thing they can pretty much do to counteract Saudi cuts is to bring more oil into the market from other countries. Iran and Venezuela are the best candidates.”
The United States may have few other options as domestic producers of oil from shale won’t fill the void in the short term and Washington is unlikely to tap the nation’s strategic petroleum reserve, after doing so last year brought it down to levels last seen in the 1980s, León said.