The oil price is risingon track to close higher this week after consecutive days of losses.
Forecasts on economic growth in the US and other world powers, which influences the demand factor, are accompanied by fluctuating expectations on supply, with the conflict in the Middle East which could still surprise with an escalation and impact on crude oil prices.
During the week, the Brent gained so far 2.4%, while the WTI rose by 0.9%. Both prices are up around 0.44% at the time of writing. Among the unknowns of the Middle Eastern war, with the “joker” Iran which could directly impact oil production, and the uncertain forecasts on Fed rates and the strength of global demand, the crude oil prices appear to be a puzzle not easy to interpret.
The price of oil and the economic growth factor
The theme of global demand and how much it will grow in the coming months/years is central to crude oil price forecasts.
Treasury Secretary Janet Yellen told Reuters on Thursday that U.S. GDP growth for the first quarter could be revised upwards and that inflation would decline. U.S. economic growth was probably stronger than the weaker-than-expected quarterly data suggested, she said. This was a source of momentum for the price of oil.
Macro results had shown that economic growth had slowed in the first quarter and, before Yellen’s comments, shocks from accelerating inflation had weighed on oil prices as investors had calculated that the Fed would not cut interest rates before September.
Looking beyond the US, the increase in global GDP could reach 2.9% this year, according to Reuters’ 500 respondents. This means that central banks will have difficulty starting to cut rates and that financing costs will remain high for longer.
The implications for demand for oil they are, consequently, contrasting. On the one hand, strong economic growth favors greater demand for oil. On the other hand, higher policy rates will contribute to high inflation, which tends to weaken oil demand growth, keeping Brent and WTI within a range, in the absence of any escalation in the Middle East that threatens the offer.
Middle East effect on crude oil? Anything could happen
Although for now the price of crude oil has not been shaken too much by Middle Eastern events, anything could still happen.
A serious escalation of tensions in the Middle East would push the oil price above 100 dollars (£80) a barrel and would reverse the recent downward trend in global inflation, the World Bank said a few days ago.
The World Bank’s latest commodity markets report states: “A moderate conflict-related supply disruption could do increase the average price of Brent this year at 92 dollars a barrel. A more severe disruption could send oil prices above $100 a barrel, raising global inflation in 2024 by nearly a percentage point.”
Idermit Gill, chief economist at the World Bank, said global inflation remains unbeaten. A key force for disinflation – falling commodity prices – has essentially hit a wall.
“This means that i interest rates they could remain higher than currently expected this year and next. The world is in a vulnerable moment: a serious energy shock could undermine much of the progress made in reducing inflation over the past two years.”he added.
Meanwhile, the news tells us that Israel has intensified the attacks airstrikes on Rafah after saying it would evacuate civilians from the southern city of Gaza and launch an all-out assault despite allied warnings that doing so could cause unacceptable casualties.
