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The Oil Price Rollercoaster: What’s Behind the Ups and Downs and What It Means for Inflation

If you’ve been tracking the world of finance lately, you’ve probably noticed the wild swings in oil prices. Just last month, the buzz was all about hitting the big $100 per barrel, but then, in a twist of events, prices rolled back to under $90 this month. But what’s behind this erratic dance of the barrels?

The sudden flare-up between Israel and Hamas over the weekend adds to the ongoing volatility we’ve witnessed throughout 2023. With the tensions arising in an area abundant with oil, it wasn’t surprising to see both international and US crude prices leap upwards. The big fear? Major oil producers like Iran or Saudi Arabia could be pulled into the skirmish, jeopardizing supply.

This year’s volatility is compounded by global economic challenges, as nations grapple with looming inflation and shifting recession forecasts. One can’t help but draw a connection between these geopolitical events and their potential economic consequences. Particularly for inflation, as oil prices play a critical role in determining our day-to-day expenses.

While the Federal Reserve typically zeroes in on core inflation (which excludes food and energy prices), let’s be real – a spike in oil prices impacts nearly every corner of our economy. Just a month ago, the year-on-year Consumer Price Index (CPI) stood at 3.7%, notably above the Fed’s 2% target.

But here’s a quick flashback:

Back in September, the oil market was buzzing. The West Texas Intermediate (WTI) crude was brushing up against the $95 mark, and Brent, its international counterpart, was eyeing the coveted $100 spot. The sudden surge was mainly due to supply constraints as heavyweight producers like Saudi Arabia and Russia decided to cut production. Their goal? Correcting what they deemed were price “distortions.” And the result? These titans probably pocketed an impressive $3 billion in profits.

However, as always, the tides shifted. Wall Street began to grow wary, concerned that these high prices might dampen demand. Consequently, WTI crude prices slid down by 11%, settling at $84.57 a barrel just last week. Additional news like Russia’s potential lift on diesel export bans and data showing weakened gasoline demand added fuel to the price drop.

But then came the Israel-Hamas conflict, flipping the script once again. With the unexpected attack by Hamas on Israel, the oil market was rife with anxiety. Both Brent and WTI prices surged by over 4% in response to potential threats to global crude supply.

For investors and entrepreneurs alike, these market swings serve as a poignant reminder: global events can have ripple effects on financial landscapes. With oil prices dancing to various tunes, the road ahead for inflation remains uncertain. And as always, staying informed, adaptable, and strategy-driven is the best way forward.