As OPEC+’s Oil Decision Raises Inflation Worries, FED’s Job Will Get Harder!

On Sunday, some OPEC+ members announced that they are preparing to cut oil production by 1 million barrels a day by the end of the year, causing oil to start the week with an increase of close to 5%.

Brent Petroleum, which was traded at $79 on Friday, started the week at $85.

The decision came from eight OPEC+ producers, including Saudi Arabia. Combined with Russia’s 500,000 bpd cuts, a 1.6 million bpd cut is on the agenda until the end of the year.

While the USA expressed its discomfort due to the cuts, Russia stated that this decision was taken independently and that it did not have any direction.

How Will the Oil Side Affect the Fed?

The outbreak of the banking crisis in the USA caused the FED to reduce the tightening rate, which was positively received by the markets. However, the rise in oil prices due to the decrease in oil supply may increase concerns about global inflation. Because, after the restriction decision from OPEC+ members, expectations that Oil could reach $100 again increased. In light of the latest developments, Goldman Sachs has changed its Brent Oil target price to $95 for December 2023.

Evaluating the impact of the rise in oil prices on the FED, Rystad Energy said in its latest research note:

“The expected rise in oil prices for the remainder of the year as a result of these cuts could fuel global inflation and cause central banks around the world to be more hawkish about rate hikes. But if inflation rises again, it will reduce economic growth and reduce demand for oil.”

According to Tamas Varga, who spoke to CNBC, the rise in oil prices may lead to an increase in headline inflation, but this will not have an impact on the monetary policies of the central banks. Because core inflation, which central banks take into account, will not be affected by the increase in oil prices.

Experts, who are united in the point that the rise in oil prices will fuel global inflation, are divided on the reaction of central banks to this.

Caught between the banking crisis and inflation in the light of recent developments, the FED is faced with a new crisis that will increase the pressure on inflation.