Oil Prices on the Rise
The cost of living is not likely to improve after Brent oil prices have risen. Some of the world’s largest exporters of oil have cut their production, hiking up prices by almost 6%. Saudi Arabia and Iraq have cut production by over a million barrels a day, and Russia is cutting half a million barrels a day for the rest of the year. Petrol prices are unlikely to be affected unless the price remains high over a few days.
Shell and BP experienced a rise in their share prices by over 4% after this news, but oil prices themselves are returning to pre-Ukrainian invasion levels. America has called for output to increase in order for prices to drop. In light of stubbornly high levels of inflation, energy prices have been one of the defining factors of this. Oil prices going up could be a cause for concern.
Higher energy bills may not directly come out of the rising cost of oil, as gas is mainly used for home heating. Energy bills have also been fixed thanks to government intervention, but transport costs could be affected if fuel prices are. According to the RAC, this may not happen in the short term, as a fortnight is usually enough to determine whether the price of fuel increases.
Members of the Opec+ oil producing group are reducing their output in a bid to stabilise the oil market. Accounting for 40% of the global supply of crude oil, the group has been accused of trying to keep the price of oil above $80 a barrel in the medium term. As demand is affected by a global economy that is weakening, the move will impact more than sanctions have on limiting the supply of Russian oil.
Some have been concerned that the global demand for oil would exceed its supply, mainly towards the end of 2023. Inflationary pressures are expected to grow, following the announcement, which will not only increase the burden on the cost of living, but also potentially cause the UK to experience a recession. This is not welcome news, seeing as official figures have been more promising than originally thought.
Despite calls from the White House to increase production of crude oil, Opec members have instead cut supply. They have the power to opt to produce more to drive down prices, but have elected to go the other way instead, most likely in a bid to keep profits up in the medium to long term. During the pandemic, production was slashed by over nine million barrels a day.
After Russia’s invasion of Ukraine, the price of oil spiked to over $130 a barrel, but levels have steadied to around $70 a barrel since March 2023. If a sustained increase is achieved in the price of crude oil, the knock-on effect will be felt at petrol pumps, causing people to have even less money in their pockets during the continuing cost of living crisis.
India and China did not impose any sanctions on Russian oil, and they are importing more as a result. The G7 implemented a price cap of $60 barrel on any oil Russia exports in an attempt to reduce Russia’s revenue.