Oil Price Upwards Move Gives Us a Downer

Posted on Apr 04, 2023. by NTI

There is an old adage in football; 'Spurs will always let you down' (with due deference to a solitary League Cup win in 2008, where the trophy was placed a little too eagerly in what Tottenham call a 'trophies cabinet', but what the rest of us will always see as an upended empty cardboard box). There is another old adage that returned to the forefront in today's news; the oil price will always go up just when you expect inflation to go down.

With the Fed in the States announcing that US inflation broke through 5 per cent on the way down on Monday it seems that the Opec+ group of oil exporting countries have different ideas. They are so miffed that the next quasi-variant of Volkswagen's Golf will be its last, that the cut was announced and Brent, the international benchmark, rose by as much as 8 per cent and touched a one-month high of $86.44 before paring gains to trade up 6.3 per cent at $84.93 in New York last night (Monday 3 April).

"Take that you electrified vehicle guzzling hippies."

Why would Opec+ do such a thing? Why? Why? We could get no sense from BP and Shell last evening, as their doors were closed and there were multiple popping sounds emanating from within their headquarters. BP’s shares closed up 3.8 per cent and and Shell rose 5.1 per cent. Why? Why?

A week ago, the American Government announced it will not be creating crude demand by refilling its strategic reserve. These latest cuts are probably a response to that decision, as might Opec's predeliction for Russia. 

This is all happening just when the storms surrounding the forced sale of Credit Suisse seem to have calmed and it appears we are going to avoid a full global banking breakdown. The latest two words to stay on the lips of financial soothsayers, following 'banking crisis', 'high inflation', 'cost o'living' (sorry) and 'pan-demic' (no, really, very sorry), are 'credit crunch'. Bank lending to companies in the Eurozone contracted for four straight months before last month.

This credit squeeze is a deliberate result of monetary policy decisions. Raising interest rates makes borrowing more expensive and dampens demand for credit to cool growth and inflation. But is the financial vice tightening too far and for too long? The result is that many UK businesses will now be facing higher refinancing rates, with others struggling to get cash at all. One possible consequence of this is that central banks will be forced to retreat and carry out emergency rate cuts to stamp out contagion. Investors are already betting on major monetary easing from the Federal Reserve in the second half of the year.

« Back to articles