As in a pressure cooker, the whistle indicates that the lid is about to pop. Oil continues its rise in international markets.
The psychological level of $100 can be a matter of days. Brent broke above $97 a barrel yesterday, the highest level since November 2022. Prices for the black gold have risen by an average of a third since this summer, in what it represents as a bullish streak biggest since the collapse of confinement in June 2020.
Supply problems continue. U.S. crude inventories fell by about 2.2 million barrels last week, much more than expected, to about 416 million barrels.
The lack of crude oil is beginning to be felt after the Organization of the Petroleum Exporting Countries, Russia and other allies that make up the grouping known as OPEC have cut production by 1.3 million barrels per day until the end of the year. The group of producers will meet on October 4 to analyze the situation. The cartel estimates that there is a deficit in the market of around three million barrels per day.
Despite uncertainty about eventual recession risks, oil demand remains robust in both the United States and China, particularly in transportation, and is pushing up prices globally.
While market turbulence always takes time to translate into prices, fuels are also on a bullish streak. In Spain, twelve consecutive weeks on the rise. Since the beginning of the summer, the increase is 17%. Gasoline is at annual highs, while diesel has been at an all-time high since late January.
Fuels are at levels higher than they were before the war in Ukraine, although they have not reached the record they reached more than a year ago, at the height of the war conflict.
The reaction to the stock markets is also being felt. Wall Street’s three largest indexes are poised for their first quarterly declines in 2023, according to Reuters estimates. The fixed-income market is already taking on increased risk, with yields not as high since more than a decade ago, due to uncertainty about interest rates, which may remain high for a long time.
The yield on the 10-year US Treasury, the benchmark for global borrowing costs, topped 4.6% for the first time since 2007. In Europe, Italian bonds are already offering returns that seen since the sovereign debt crisis of 2012.
Pilar Gómez-Bravo, co-director of global investment at MFS IM and specialist in fixed income, made the following analysis: “In Europe, inflation is essentially a phenomenon of supply. But the European Central Bank (ECB), by keeping interest rates high for longer, acts on demand”, reflects this expert.
“However, the ECB cannot do anything more. Real rates in the Eurozone are still negative. Since his mandate is to control inflation, he trusts that keeping the price of money at high levels will cool expectations, also psychologically. He hopes that inflation will fall, that supply chains will recover and that the energy crisis will calm down before a recession arrives in the Eurozone so that he can have room to lower rates”, he says.
If risk premiums rise, who will manage to turn off the pressure cooker?
