International Oil Prices Surpass $90 'Yearly High'... Inflation Warning Signs

Saudi Arabia and Russia Decide to Extend Production Cuts

International oil prices surpassed $90 per barrel intraday for the first time this year. Prices surged as Saudi Arabia and Russia decided to extend their crude oil production cuts. There are concerns that this could reignite inflation, which had just begun to ease.

As international oil prices continue to rise despite the extension of the fuel tax reduction measure, gasoline prices have been increasing for the eighth consecutive week. On the 6th, the prices for gasoline and diesel were displayed at a gas station in Seoul. Photo by Jo Yongjun jun21@

On the 5th (local time), Brent crude closed at $90.04 per barrel, up 1.2% from the previous trading day in the international oil market. This is the first time since November last year that it has crossed $90. West Texas Intermediate (WTI) crude closed at $86.69 per barrel, up 1.3% from the previous day, marking its highest level in 10 months.

Oil prices rose as major oil-producing countries extended production cuts amid growing concerns over the economic crisis in China, the largest oil consumer. The Saudi Ministry of Energy extended the deadline for its production cut policy of 1 million barrels per day, which began in July, from the end of next month to the end of December, a three-month extension. Russia also extended its production cut policy of 300,000 barrels per day from the end of this month to the end of the year.

The rebound in oil prices is spreading concerns about global inflation. If worries about inflation move away from a calming phase, the timing of the U.S. Federal Reserve's pivot (a shift in monetary policy direction) will be delayed. Fed Chair Jerome Powell said at the Jackson Hole meeting on the 25th of last month, "It is a welcome development that inflation has come down from its peak, but it is still too high," adding, "We are prepared to raise interest rates further if appropriate."

[Image source=Yonhap News]

This also poses a significant burden on President Joe Biden, who is seeking re-election in next year’s presidential election. Some analysts interpret the recent production cut decision as a move by Russia, which favors the election of former President Donald Trump with a 'pro-Russia' stance, to influence the U.S. presidential election.

Ole Hansen, Head of Commodity Strategy at Saxo Bank, said, "There is a possibility of prolonged higher oil prices, higher inflation, and higher interest rates," adding, "This is exactly the reality we are currently walking on a tightrope."