When Brent oil surpassed $90 per barrel a few days ago, military tensions between Israel and Iran were the immediate trigger. But the fundamentals of the recovery went deeper: global supply shocks are intensifying fears of a resurgence in commodity-driven inflation.
A recent move by Mexico to reduce its crude oil exports is worsening global pressure, leading refineries in the US – the world’s largest oil producer – to consume more domestic barrels. Oil shipments from Mexico, a key supplier to the United States, fell 35% last month to the lowest level since 2019, as President Andrés Manuel López Obrador tries to make good on promises to reduce costly fuel imports. American sanctions have deprived Russia of tankers that previously transported its oil to buyers including India. The supply crisis could become even more acute in the coming weeks. With President Nicolás Maduro showing no signs of fulfilling promises to move towards free and fair elections, the Biden administration could reimpose sanctions this month. Houthi rebel attacks on oil tankers in the Red Sea have delayed crude oil shipments.
In the midst of these geopolitical tensions, OPEC+ took a fundamental decision in March 2024 to maintain existing production levels, extending supply restrictions until the second quarter of the year. Furthermore, the OPEC member United Arab Emirates reduced shipments of Upper Zakum, a semi-sour crude, by 41% in March, compared to last year’s average, according to data from maritime intelligence firm Kpler. . The state oil company is diverting more supplies of that crude to its own refinery, traders said. While the cuts were expected and Abu Dhabi National Oil Co. is offering buyers another type of crude as a substitute, the decline in exports from Upper Zakum is contributing to higher regional prices amid the broader OPEC+ clampdown.
All of this contributes to a magnitude of supply disruption that took markets by surprise. The crisis is boosting oil prices ahead of the summer season in Europe and the US, threatening to push Brent crude, the global benchmark, to $100 a barrel for the first time in almost two years. This is amplifying inflation concerns that are clouding US President Joe Biden’s re-election chances and complicating central bank deliberations on rate cuts.
Supply shocks have shaken oil markets around the world. Brent oil closed the week on April 5 at US$91.17 per barrel, the highest value since October 2023.
In Angola, the references Girassol and Cabinda, which are traded at a premium compared to Brent, closed the week at US$ 94.46 and US$ 93.90 per barrel respectively. References Nemba and Dalia closed close to Brent at US$ 91.45 and US$ 91.10 per barrel respectively. It should be remembered that the General State Budget for 2024 was approved with an oil reference price of 65 dollars per barrel, ten dollars less than the 2023 OGE reference, which was set at 75 dollars. The rise in oil prices should provide greater fiscal space in budget execution to cover priority expenses.
Oil prices are now driving global inflation, after subtracting it at the end of last year. A Bloomberg index of key raw materials rose to the highest level since November as prices for oil, essential minerals and agricultural products rose.
As cocoa attracts attention with its strong recovery, prices of other important crops are also rising – reviving the risk of food inflation that has remained stubbornly high in some parts of the world. Food inflation is above global inflation in more than 60% of the 167 countries recently assessed, the World Bank said in a report in late March.
Palm oil – used in a range of grocery items – is at a 17-month high, Robusta coffee futures are the most expensive since at least 2008, and corn is up more than 30% this year.
Central banks in the United States and Europe are paying attention to the impact of commodities on inflation before initiating interest rate cuts, as expected by markets. This may be evident in the March US consumer price index due on Wednesday, as the global CPI is expected to accelerate on an annual basis, while the core measure excluding food and energy is expected to stabilize or at best chances, register a decline.
Looking ahead, market professionals will emphasize the intricate interplay between geopolitical tensions, supply dynamics and demand trends. While factors such as geopolitical unrest and production restrictions can put upward pressure on oil prices, it is essential to monitor demand-side considerations in the context of global economic recovery efforts and the energy transition.
By: José Correia Nunes
Executive Director Portal de Angola
2024-04-07 23:27:42