$100 Oil? What a Price Spike Could Mean for Markets and Geopolitics

• Analysts see Brent crude climbing to levels last seen in the first months of the Ukraine war after Saudi Arabia and Russia extended production cuts. Brent crude oil was trading on Wednesday morning at around $90 a barrel for the second straight day and is up 25% since June thanks to the prospect of more production cuts by leading oil exporters.
• The surge is sending ripples through the global stock and bond markets. The prospect of higher prices at the pump and throughout manufacturing may spur diplomatic efforts to increase supply and tamp down any inflationary effects on the global economy.
• Saudi Arabia and Russia are behind the price increase. The two said on Tuesday that they would extend their oil production cuts — equivalent to a combined 1.3 million barrels a day — through year-end. The duration of the cuts surprised market watchers, as did Saudi Arabia’s hint that it may make even deeper cuts in the coming months.
• There are wild cards to consider. China’s sputtering economy could sap demand for oil, keeping prices down. Costlier oil could also affect interest rates. “Higher oil prices will only increase the likelihood of more fiscal tightening, especially in the U.S., to curtail inflation,” León said.
• Global leaders may seek relief from sanctioned oil exporters. Iran’s oil exports have surged since Saudi Arabia began cutting its production this summer, and Bloomberg reported last week that Tehran and Washington have held back-channel talks to keep crude flowing to make up for supply reductions elsewhere. Venezuela, another exporter under sanctions, has reportedly turned to Beijing to help it revive production.

(Source: NY Times)