Here’s What Investors Need To Know

Key Takeaways

• OPEC+ just announced the biggest cut to oil production since the beginning of the pandemic, and this will drive up energy prices during a period when inflation’s soaring.
• The Russian attack on Ukraine has had severe economic impacts on the entire world as energy prices have gone up due to sanctions on Russian oil.
• The White House has stated the importance of not relying on foreign fuel sources and emphasized the importance of developing clean energy sources.

Oil prices have had a turbulent few years thanks to everything that’s been happening around the globe. From a global pandemic that has lasted more than two years to a war that began earlier this year, these historical events have led to fluctuations in oil prices as we saw them dip into the negatives during the start of the pandemic and then earlier this year rise to $140 per barrier.

OPEC+ recently announced that they were cutting oil production as the world continues to deal with rising inflation. Let’s look at what’s happening with oil prices in 2022 since many people are wondering what has been influencing them.

What’s happening with oil prices?

It’s difficult to pinpoint the most important issue facing oil prices right now. Let’s look over some of the major factors that are impacting oil prices worldwide right now.

The Ukraine war

The Russian war in Ukraine has drastically interrupted the oil supply, including sanctions against Russia. When Russia first attacked Ukraine, the oil prices went through the roof, jumping from around $76 per barrel at the start of the year to over $110 per barrel on March 4, 2022. The US then announced a ban on Russian oil on March 8, which further drove up domestic energy prices to astronomical levels.

The Russian invasion of Ukraine has reconfigured the global oil situation. With the U.S. ban on Russian oil, Russia pivoted from Europe to customers in India and China. With the ongoing war in Ukraine, the sanctions against Russia continue, which will further force a reconfiguration of the global oil supply.

OPEC+ reduction

On October 5, OPEC + announced that it would be reducing oil production by two million barrels per day. OPEC+ announced that they were cutting oil production for purely economic reasons and nothing else.

Critics have brought up how the reduced production will increase the global prices of oil, bringing in more revenue for Russia as they continue the war in Ukraine. Despite all of the western sanctions, Russia can still fund its war against Ukraine by exporting oil.

Since the world consumes about 100 million barrels of oil per day, eliminating two million barrels per day will significantly impact oil prices at a time when inflation is soaring and consumers are dealing with interest rate hikes that are intended to slow down the economy.

Saudi Arabia relations

Many feel that this decision is shortsighted as the world continues to deal with rising energy costs. President Joe Biden has threatened consequences for Saudi Arabia as tensions rise. The White House is disappointed with these oil cuts, and Biden will be consulting with Congress to see what actions can be taken without mentioning specifics. It’s clear that Saudi Arabia isn’t worried about these consequences since they were warned numerous times prior to announcing the cut.

Oil prices during Covid and the Covid recovery

When the pandemic hit, most of the world was under lockdown, meaning that people very suddenly drove less. With people reluctant to even leave their home, and offices closed, demand for oil plummeted. These lockdowns also meant that people weren’t traveling as much via public transportation, airplane, et cetera so the oil demand sharply declined in these industries.

Global lockdowns and travel restrictions meant that the world suddenly had more oil than it needed. As storage facilities and oil tankers began to fill up, concerns over where to store all of this oil led to benchmark prices going negative between April 20 and April 22, 2020.

This led to a decrease in oil production to match the pandemic’s decreased demand. Companies had to either slow down oil production or stop it altogether.

Then, when restrictions loosened globally, consumers were again ready to start driving and traveling. The oil demand outmatched the supply, and the oil companies couldn’t keep up, not at first. This caused oil prices to increase again as oil companies worked on increasing the supply to match the new demand. The sudden increase in demand post-pandemic drove up the prices of everything, further ensuring that inflation wouldn’t be transitory.

Industries impacted by high oil prices

Oil prices impact many industries because fuel’s needed for many business operations. So when oil prices go up, consumers feel it with increasing fees. Here are the industries that are most influenced by higher oil prices.

Airlines

Airlines feel the impact of rising oil prices because they rely on the resource for their core business. The result in a situation like this is that consumers are feeling the sting of higher-priced tickets for flights.

Transportation

Airlines aren’t the only form of transportation impacted by rising oil prices. Rail, public transportation, shipping, and everything else in this industry gets more expensive as it costs more to transport people.

Logistics and delivery services

When fuel costs more, it impacts every logistics or delivery service company since they have to spend more money on getting goods across the country. When you hear about supply chain issues, it’s often related to labor shortages or the increased cost of performing the same task.

Rising energy prices contribute to the increased price of almost all goods, which drives inflation even further up as everything costs more.

What’s next for oil prices?

Before October 5th, many experts were predicting that oil prices would remain stable for the rest of 2022 since inflation concerns have impacted consumer spending. Oil prices also tend to fall during a recession with less money circulating in the economy.

The decision by OPEC+ will certainly drive up the oil prices during a time when everything already feels too expensive. Since crude oil prices are controlled by supply and demand, a reduction in supply will have a noticeable effect. The other factors at play with crude oil prices are inventories and market sentiment, which we must wait to watch unfold since we have yet to see what will happen with the continued rate hikes.

The next meeting for OPEC+ will be held on December 4th, and we’ll see then if they reverse this decision as a result of possible consequences from the US.

Higher oil prices will also naturally increase the demand for cleaner energy as consumers will look to save money. It’s no secret that turning to solar energy or other renewable energy sources would also reduce our reliance on other countries.

In a statement released by the White House, this message stood out:

“With the passage of the Inflation Reduction Act, the U.S. is now poised to make the most significant investment ever in accelerating the clean energy transition while increasing energy security, by increasing our reliance on American-made and American-produced clean energy and energy technologies”

How should you be investing?

All this news about rising oil prices is enough to impact earnings, which certainly concerns investors. While some energy stocks are reporting record years, there’s no shortage of volatility in the stock market overall. We also can’t forget how soaring inflation is still an issue as the Fed looks to continue with rate hikes that many analysts believe will tip the economy into a full-blown recession.

OPEC cutting production has impacted investors in many ways already. The global benchmark for oil prices is the Brent Crude futures, and the volatility has certainly increased there.

Many experts also agree that soaring inflation will invariably worsen if fuel prices rise again. With Q.ai’s Inflation Kit, you could turn those inflation fears around with an Investment Kit that aims to profit from higher inflation. With the unique Portfolio Protection feature, you can protect yourself further against potential market downsides.

Bottom Line

Many unique and unanticipated factors led to fluctuating oil prices this year. Even though the world is slowly transitioning towards cleaner energy, we still have to pay attention to what’s happening with oil prices globally as they impact almost every aspect of our everyday lives. With fears of a global recession looming over us, many experts are concerned about the impact of rising oil prices since energy supply shocks have historically caused major economic issues.

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