Rising Oil Prices And Their Global Domino Effect

By: Anneken Tappe · September 07, 2023 · Reading Time: 2 minutes

Crude Realities

Global oil prices are soaring, spiking to $90 a barrel, a remarkable 25% increase since June.

The main culprits behind this surge are Saudi Arabia and Russia, which have extended production cuts through the end of the year, limiting the global supply and driving up prices.

The result could be a climb to triple-digit prices, reminiscent of the early days of the Ukraine war.

The Inflation Inflection

Energy markets aren’t isolated, and the surge in oil prices is causing tremors in global stock and bond markets.

Energy costs are one of the most volatile components of inflation, and some analysts worry about future inflationary effects on the global economy. Central banks might continue a hawkish stance on interest rates to counteract rising prices.

Investors, sensing the heat, have been offloading 10-year Treasury bills and other government bonds in response.

High-Flying Costs

Rising fuel costs are already biting at home.

Major U.S. airlines, including Southwest Airlines (LUV), Alaska Air Group (ALK), and United Airlines (UAL), have seen fuel costs increase by more than 30% since early July. Both Southwest and Alaska said their earnings could be affected by the high energy costs.

Since fuel is one of the biggest expenses for airlines, this surge could be passed through to consumers via ticket prices.

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