Oil prices are now approaching the $100 per barrel mark and are currently trading at $96 per barrel, the highest levels in over 10 months.
The elevated prices are attributed to supply cuts by Saudi Arabia and Russia who curtailed oil production by 1.3 million barrels per day until the end of the year.
Oil producers remain pessimistic about global economic growth as many nations still battle to counter elevated levels of inflation, with some Central Banks still raising interest rates to combat inflation and purchasing power.
Since July, oil prices have risen almost 18% as a result of the supply cuts.
Earlier this year, the Organisation of the Petroleum Exporting Countries (OPEC) and other affiliated countries cut oil production to push up prices amid a weak global economy.
Investec’s chief economist, Annabel Bishop says, “What’s happening is they are limiting production in order to push up prices to make oil scarcer and result in higher costs for consumers.”
Another reason is that as the world moves to lower carbon emissions, the demand for oil will become less.
“So, it will definitely have an inflationary effect. It will push up inflation and the concern really is it will push up inflation and the concern really is that you find yourself in a situation where because of measures to reduce the effects of climate change, climate change mitigation measures the oil exporting countries are trying to produce oil and obviously increase prices at the same time in order to get as much as possible before globally the world stops using as much oil as it did previously.”
Demand and supply
Chinese data also plays a hand in gauging demand and supply for oil as they are the largest importer of oil in the world.
Economist at First National Bank, Koketso Mano says, “One of the primary instigators that maybe better is data out of China. We are seeing policy support but there generally some optimism that China could perform a bit better than what we’ve seen of late. The numbers there have not been very strong so the recovery has not been strong as people may have expected at the start of the year. But if better data comes out of China which is the biggest importer of oil that would be something that also supports oil prices towards the end of the year. So we in for maybe a rough couple of months before we potentially see some relief.”
The results of all this does not look good and could be felt at the end of the month when motorists go the petrol stations.
“So, unfortunately we will see another hike. It looks as though we will see another hike in October and as I’ve mentioned if prices remain supported for the fourth quarter then likely we will see a bit of pressure coming through on the fuel front for the remainder of the year.”
Headline inflation for the month of August is expected to increase to about 5%, from 4.7%, which could have adverse effects on Thursday when the Reserve Bank makes its interest rates decision.
Oil prices expected to hit $100/barrel:
