Crude Awakening: Rising Oil Prices Complicate Fed's Rate-Hike Decisions
As brent crude futures soar toward $100, it's creating a new battle in the Federal Reserve's effort to fight inflation. One money manager warns another rate hike is likely.
Brent crude futures, the international energy benchmark, are on track to rise by 26% this quarter having climbed to about $95 a barrel. On Tuesday, they added 0.4%, putting prices on track for a four-day streak of gains and rises in 13 of the past 16 trading days. West Texas Intermediate futures, the U.S. benchmark, have jumped 29% this quarter to just over $91 a barrel.
Gasoline prices are already on the rise to a national average of $3.88 a gallon in the U.S. from $3.68 one year ago, AAA said. Gas costs jumped 11% from July to August, driving more than half of overall inflation for the month.
Meanwhile, the price of diesel, which often fuels trucks and factories, has soared even faster, especially in Europe. In the U.S., the average price is $4.58. Data from Britain this morning showed inflation fell faster than expected last month, but rising fuel prices were an outlier to that trend.
U.S. oil stockpiles fell by 5.25 million barrels last week, the API is said to have reported. That would bring holdings to the lowest in more than nine months if confirmed by the EIA today. Meanwhile, Goldman Sachs today raised its price target for Brent crude to $100, joining a growing club that predicts triple-digit oil heading into the winter.
As energy costs are on the rise, Pimco money manager Geraldine Sundstrom, says markets are underestimating the risk of another rate hike before year-end. “Higher for longer” is likely the mantra for US rates as “inflation will remain a little bit stickier than expected,” Sundstrom said.
Another important note for agriculture is the U.S. dollar is staging a comeback, surging in value despite earlier predictions of a decline, while economic growth in China and Europe faces challenges. This reversal in the dollar's fortunes began in July, defying expectations of a retreat that were based on the belief that the Federal Reserve's interest rate hikes were approaching their conclusion.
The dollar's resurgence is now reminiscent of its strong performance in 2022, a year marked by economic disruptions as it drove up commodity prices in global markets and increased the burden of foreign debts for many. Mark Nash of Jupiter Asset Management characterized the dollar's current strength as formidable, noting that he had abandoned his pessimistic stance on the dollar earlier in the year.
