Rising oil prices raise concerns about inflation and global markets

The price of oil hit a new record of over $95 per barrel, the highest level since November 2022, as a result of continued crude oil reductions and supply cuts implemented by OPEC+. Rising oil prices have the potential to affect inflation and global markets, raising concerns for central banks.

Craig Erlam, senior market analyst at OANDA, says high oil prices could be detrimental to the global economy, especially as central banks try to combat inflation. Recent stimulus measures in China have also contributed to the bullish sentiment among traders.

The impact of rising oil prices on inflation is a significant concern. Russ Mold, chief investment officer at AJ Bell, suggests that sustained increases in crude oil prices could lead to rising inflation rates. This, in turn, could depress corporate profit margins and reduce disposable income for consumers. Policymakers will closely monitor these developments, especially if they need to raise interest rates as the economy slows.

Daniela Hathorn, senior market analyst at Capital.com, warns that prices above $100 will largely depend on geopolitics and may not be sustainable in the long term. As economies slow and demand for oil declines, it may become harder to find buyers, despite hints from Saudi Arabia and Russia about further supply cuts. Higher oil prices represent both an upside risk to inflation and a downside risk to growth, especially for economies that rely heavily on energy imports.

Additionally, companies are affected by rising oil prices as this leads to higher costs. The Organization for Economic Cooperation and Development (OECD) predicts that global gross domestic product () growth will slow to 3.0% this year and continue to decline to 2.7% in 2024. The economy of The United States will grow 2.2% this year, while the Chinese economy is expected to slow from 5.1% to 4.6% next year.

Additionally, consumers will feel the impact of higher oil prices at service stations. The RAC warns that drivers can expect higher fuel costs as petrol prices have already reached their most expensive levels since December. Drivers could face even higher prices if oil hits $100 a barrel, as retailers could increase their margins even further. This raises concerns about consumer spending and demand in the broader economy.

Sources: Getty, AJ Bell, OANDA, Hargreaves Lansdown, RAC, Organization for Economic Cooperation and Development (OECD)

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