Global Crude Prices Soar: Oil's Surging Costs Explained

Crude oil prices have been rising sharply across the globe, and it has raised fresh concerns about the impact it will have on the world economy, especially as many nations continue to grapple with high inflation.

On Monday, crude oil prices rose further as markets expect major producers to tighten supplies.

Another reason why crude oil prices gained was due to growing hopes that the US Federal Reserve would leave interest rates unchanged to avoid dampening the US economy.

Brent Crude November futures were up 3 cents at $88.58 a barrel at around 8 a.m., while US West Texas Intermediate crude (WTI) October futures rose 9 cents to $85.64 a barrel.

Supply tightening by OPEC+

Sugandha Sachdeva, executive vice president and chief strategist at Acme Investment Advisors told news agency Reuters that the anticipation of additional supply cuts from major oil-producing nations has primarily driven crude oil prices.

“Crude oil prices have been primarily driven by the anticipation of additional supply cuts from major oil-producing nations, Russia and Saudi Arabia,” said Sachdeva.

He, however, noted that the steady increase in US oil production could limit further significant gains in price.

On Thursday last week, Russian Deputy Prime Minister Alexander Novak confirmed that the country had agreed with partners in the Organization of the Petroleum Exporting Countries (OPEC) on the parameters for continued export cuts.

#OPEC + likely to announce additional supply cuts, led by #Russia and #SaudiArabia https://t.co/EkfGl3qLcr
— Shriram Insight (@sisbl_in) September 4, 2023

OPEC+ will likely announce the planned cuts this week. Russia had said earlier that it would cut exports by 3,00,000 barrels per day (bpd) in September, following a 5,00,000 bpd cut in August.

Impact of China, US economic data

Another factor that has led to a rise in crude oil prices is related to China and US economic data.

According to Caixin’s manufacturing PMI survey data, China’s manufacturing sector showed a surprising expansion in August.

This unexpected growth has sparked fresh optimism about the economic well-being of the world’s biggest oil importer.

In the United States, Friday’s employment data surpassed expectations, revealing a gain of 187,000 jobs last month in the nonfarm sector.

According to analysts, this broader slowdown in the U.S. labor market, marked by a deceleration in job growth, has diminished the likelihood of imminent interest rate hikes by the Federal Reserve.

Impact of rising oil prices

Rising global crude oil prices have widespread economic implications, impacting inflation, consumer spending, business costs, energy bills, global trade, government budgets, investment markets, and geopolitical stability.

Consumers face higher gas and electricity costs as fuel prices rise, leading to higher inflation and lower spending.