Gas prices are the talk of Wall Street after the release of today’s red-hot Consumer Price Index (CPI) report. The long-awaited inflation gauge came in higher than expected, with energy prices leading the charge. Fuel costs, in particular, are a point of focus following the surge in oil prices over the past few weeks.
So, why are gasoline prices so high right now?
Well, it seems gas prices are starting to respond to Saudi Arabia and Russia’s recent decision to extend their oil production cuts through the end of the year. Indeed, earlier this month, the two countries announced they would extend their voluntary oil output cut of 1 million barrels per day through December 2023.
According to an unnamed Energy Ministry official from Saudi Arabia, the extension is part of an effort to balance the oil market. Though many analysts agree the move is an obvious profit-raising measure following last year’s record-setting year for the industry.
“This additional voluntary cut comes to reinforce the precautionary efforts made by OPEC+ countries with the aim of supporting the stability and balance of oil markets.”
Since then, Brent crude prices have been on the climb. Just yesterday, Brent hit a nearly 10-month high of $92.06 a barrel after climbing 1.6%. This was likely a response to a recently released OPEC report forecasting a 2.25 million barrels per day increase in oil demand in 2024.
“Crude prices are rallying after the OPEC monthly report showed the oil market is going to be a lot tighter than initially thought,” noted Edward Moya, a senior market analyst at data and analytics firm OANDA.
Interestingly, OPEC member Libya recently shut down four eastern oil export centers due to a storm in the area, alongside OPEC+ member Kazakhstan which reduced its daily oil production for repairs.
Gas Prices in Focus Following Red-Hot CPI Report
Today’s CPI report offered early insight into the already tangible effects of the oil supply pinch. Indeed, headline inflation hit 3.7% in August, well above July’s 3.2% and June’s 3.0% readings. It also beat consensus projections of 3.6% price growth in August.
Energy prices made up the majority of the elevated inflation, with gasoline prices in particular climbing to about $3.9 a gallon in the third week of the month. This is a notable increase from the $3.676 per gallon level recorded just a month prior.
This has sparked debate about whether today’s inflation report will convince the Federal Reserve to raise rates again at its policy meeting next week, Sept. 19-20.
“It’s going to be a mixed picture, with headline inflation picking due to higher gasoline prices and core inflation remaining contained,” said Sam Bullard, a senior economist at Wells Fargo. “The Fed would be encouraged by the continued moderation trend in core inflation, but it’s still too high.”
Higher interest rates would slow economic growth and reduce demand for gasoline.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
