Oil prices have increased after Saudi Arabia and other OPEC+ producers revealed surprise cuts in production on 3rd April 2023. Economists warned that higher oil prices could make it harder to bring down the cost of living. But the RAC motoring group said it does not expect petrol prices to rise unless the higher oil price is sustained over several days. Brent crude, the global benchmark, jumped 5.33% to $84.15 a barrel, while WTI, the US benchmark, rose 5.42% to $79.79. Both were the sharpest price rises in almost a year.
The oil prices sunk as low as $73 and $67 a barrel respectively in the week following the collapse of Silicon Valley Bank in the United States on March 10, as the turmoil spread to the wider banking sector, raising fears of a global recession. With oil prices now rising, inflation could remain higher for longer, adding pressure to a hot-button issue for consumers around the world.
“The development comes as a blow for inflation,” Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said in a note Monday. “Markets are aware that if the pressure continues, central banks will need to extend or strengthen their interest rate hiking cycles.”
However, the US has been calling for producers to increase output in order to push energy prices lower. A spokesperson for the US National Security Council said: "We don't think cuts are advisable at this moment given market uncertainty - and we've made that clear."
Yael Selfin, a chief economist at KPMG, warned that the oil price surge could make the battle to bring down inflation harder. However, she said that rising oil prices won't necessarily lead to higher household energy bills.
"The energy price cap, that households benefit from, has already been determined using earlier market expectations," she said. "Plus, when you look at energy use in households, it tends to be more gas-heavy rather than oil."
