Oil Prices Surge Past US$90 Mark. This Won’t Be Good for Motorists
The price of Brent Crude rose past the US$90 per barrel mark this week, the highest since late last year on news of the Saudi Arabia and Russian extension of supply cuts until at least the end of the year. This news sent shivers down the spines of buyers who now fear another winter of high demand and low supply.
Investors and traders had expected an extension to the voluntary cuts into October but none seemed to have expected them to last until December. Russia has also announced that they will be reducing the discount on their products going to ‘friends’ such as India and China as they have found no problem selling 100% of their production. Continued supply restriction will only send the prices higher as traders try to lock in their requirements for world markets. Despite an assurance from both Russia and Saudi to review the supply on a monthly basis and adjust prices according to market conditions, it is not thought that there will be enough to go around come the high demand months during the Northern winter.
Traders at UBS anticipate that there will be about a 1.5-million-barrel deficit per day by the 4th quarter of the year, which would mean that Brent Crude would rise to at least US$95 per barrel. This is going to lead to higher prices for petrol at the pump and long-term will start an inflationary cycle as higher energy costs in India and China (the biggest ‘workshops’ in the world) increase.