Oil prices are approaching the $100 per barrel mark this Thursday, with many analysts forecasting that they will surpass this threshold within the year. The escalating cost of oil has been a significant contributor to U.S. inflation, directly affecting gasoline prices and consequently driving consumer prices up. Over half of the 0.6% increase in consumer prices recorded in August can be attributed to gasoline, which currently averages at $3.87 per gallon, a roughly 20 cents increase from last year, according to AAA.
The rising oil prices have also influenced diesel costs, impacting the price of other goods due to their effect on shipping expenses. This surge in oil prices could potentially push inflation rates higher, leading the Federal Reserve to continue its course of interest rate hikes through 2024. However, some experts anticipate that the inflationary impact of oil will start to diminish towards the end of the year as supply begins to match demand.
Despite these trends, Natasha Kaneva, head of the global commodities strategy team at J.P. Morgan, suggests that the recent oil price boom may be nearing its end. After reaching a September target price of $90 per barrel, she expects further increases to be limited as all major market drivers have largely been exhausted for now. Kaneva predicts that oil prices will close out the year at around $86 per barrel.
The summer travel rush and China's recovery from COVID-19 restrictions have been significant factors driving up oil prices. However, recent data indicates a slowdown or even reversal in these trends, with high gas prices leading some consumers to reduce their driving habits. Kaneva notes that while there was robust demand at the start of summer in the U.S., this momentum faded in July and August and has remained relatively weak into September.
China's growth in demand also appears to be slowing down. Kaneva anticipates an increase of 1 million barrels per day in Chinese demand in the last quarter of the year compared to last year, but she expects it to remain consistent with volumes from the third quarter of 2023.
Alastair Syme, a Citi analyst, doesn't expect oil prices to significantly drive global inflation in the coming year. He points to data suggesting a potential oversupply in the oil market by 2024, given the need for continued OPEC+ cuts to balance growing non-OPEC supply against sluggish demand. However, he expresses concerns over the impact of natural gas prices on global inflation next year. A particular challenge is the approximately 4% reduction in global gas supply following Russia's cessation of sales to Europe.
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