Analysts have warned that oil prices are on track to reach $100 a barrel by May, following Saudi Arabia’s decision to extend supply cuts. The rising geopolitical tensions and the extension of production curbs by the Opec cartel have led economists to predict that oil prices will exceed $100 for the first time since the summer of 2022.
Bjarne Schieldrop, chief commodities analyst at SEB bank, expects the price of Brent crude, the global benchmark, to hit the $100 mark in either May or June. “Towards the end of Q2, I think it’s natural to assume that we’ll see the price move towards the $100 mark,” Schieldrop stated.
Since the start of the year, the price of Brent crude has already surged by approximately 20pc to more than $91 per barrel. This increase followed an announcement from the Saudi-led oil production cartel Opec in March, which declared an extension of supply cuts amounting to 2.2 million barrels per day for an additional three months.
Schieldrop believes that the jump in oil prices to $100 should be temporary unless Russia and Saudi Arabia choose to prolong the supply cuts further. “It’s a totally artificial price controlled by Opec. The big question is what will Opec do in Q3,” he added.
The implementation of cuts by Opec is seen as a move by Mohammed bin Salman and Vladimir Putin to boost oil prices and increase their revenues. Callum Macpherson, head of commodities at Investec, predicts that oil prices will reach $100 by June if they continue to rise at the same trajectory observed since December.
However, analysts have noted that the duration of high oil prices will depend on the escalation of tensions in the Middle East. In a recent client note, Daan Struyven, head of oil research at Goldman Sachs, cautioned that extended Opec supply cuts “could send Brent above $100 for some time.” Ole Hansen, analyst at Saxo Bank, suggested that this benchmark could be reached “within days” if Iran and Israel engage in conflict, disrupting local oil supplies.
A significant increase in oil prices poses a risk of prolonging inflation, as it will drive up the cost of petrol and energy. Chris Hare, senior economist at HSBC, estimates that a sustained 10pc rise in oil prices typically adds between 0.1 and 0.2 percentage points to UK inflation. Ashley Webb, UK economist at Capital Economics, highlighted that this would be especially problematic for the services sector, where cooling inflation has been driven by declines in the most energy-intensive sectors, such as transport, hotels, and restaurants.
As the world watches the developments in the oil market, the potential for $100 oil prices looms large, with far-reaching implications for the global economy and the fight against inflation.
