Oil prices surged to their highest level in more than a year on Thursday as concerns about supply shortages and planned production cuts continued to dominate the global market.
U.S. Benchmark Hits $95 Mark
The U.S. benchmark, West Texas Intermediate, edged up 0.7% to $94.35 per barrel, briefly surpassing the $95 mark for the first time since August 2022. The international standard, Brent Crude, also climbed 0.7% to reach $97.24.
OPEC Meeting to Address Output Reductions
The Organization of the Petroleum Exporting Countries (OPEC) is scheduled to convene on October 4th to discuss planned reductions in output. These cuts, combined with voluntary measures taken by Saudi Arabia and Russia, will result in a global production decrease of 1.3 million barrels per day until the end of the year.
Implications for Economic Growth and Inflation
These production cuts are expected to have a two-fold impact by dampening economic growth and driving up inflation. To preempt any resurgence in inflation rates following a significant decline earlier this year, the Federal Reserve and other central banks have pledged to maintain higher interest rates for a longer duration.
Oil Market Concerns Drive Price Increase
“The rise in oil prices is fueled by concerns about tight supplies, reigniting worries about inflation and the need for interest rates to stay higher for longer,” said Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown. While demand for oil may weaken next year, Streeter believes that “oil prices are unlikely to retreat significantly,” as major producers like Saudi Arabia have a vested interest in keeping prices elevated yet stable.
Supply Shortages Indicate Tight Oil Market
Further evidence of a tight oil market can be observed in a recent report, which revealed that supplies at the Cushing, Oklahoma storage hub have fallen to their lowest level since July 2022.