WTI Breaks $90 per Barrel... Fueling Inflation Concerns

Following Brent crude, the international oil price benchmark, West Texas Intermediate (WTI), the U.S. crude oil price indicator, also surpassed $90 per barrel. This is seen as a result of heightened concerns over oil supply shortages, which are exerting upward pressure on oil prices. This rising trend is emerging as a variable in monetary policy, as it could further fuel inflation and prolong the Federal Reserve's (Fed) tightening cycle.

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On the 14th (local time) at the New York Mercantile Exchange, the October delivery price of WTI crude oil closed at $90.16 per barrel, up $1.64 (1.85%) from the previous session. This is the highest level since November 7 of last year. It is also the first time since last November that the WTI price has closed above $90 per barrel. On the same day, Brent crude on the London ICE Exchange rose $1.82 (2%) to $93.70 per barrel.

The recent rise in oil prices is attributed to concerns over supply shortages due to extended production cuts by Russia and Saudi Arabia. The previous day, the International Energy Agency (IEA) warned that significant supply shortages could occur through the fourth quarter, further fueling these concerns. Additionally, forecasts that Libya, an OPEC member, would face some impact on oil exports due to severe flooding also contributed to the upward pressure on oil prices.

Colin Ciesienski, market strategist at SIA Wealth Management, told MarketWatch, "In a situation where (oil) demand could potentially increase, the market is reacting more strongly to supply issues." Ben Cahill, senior researcher and energy security expert at the Center for Strategic and International Studies (CSIS), also assessed that "it appears to be heading toward a significant supply shortage."

The U.S. Energy Information Administration (EIA) recently raised its Brent crude price forecast for the fourth quarter from $86 to $93 per barrel in its short-term outlook report, citing these supply shortages. Wall Street expects Brent crude to easily jump to $100 per barrel if economic indicators in Europe and China improve.

In particular, this rise in oil prices is confirmed to be pushing up U.S. inflation by leading to higher gasoline and diesel prices. The U.S. Consumer Price Index (CPI) for August, released the previous day, rose 3.7% year-on-year, exceeding market expectations due to the impact of rising gasoline prices. In contrast, the core CPI, which excludes energy and food, rose 4.3% during the same period, continuing a slowdown trend.

The impact was also clearly seen in the U.S. Producer Price Index (PPI) for August released that day. The August PPI rose 0.7% month-on-month and 1.6% year-on-year, significantly exceeding Wall Street forecasts. The increase in gasoline prices was also cited as a reason why U.S. retail sales in August rose 0.6% month-on-month, surpassing Wall Street expectations.

The market is currently watching closely how oil price-driven inflation will affect the Fed's monetary policy path as it nears the end of its tightening cycle. Although energy prices are not included in the core Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation gauge, they indirectly and directly raise costs across all sectors of the economy.

Accordingly, while the September Federal Open Market Committee (FOMC) meeting scheduled for next week is still expected to keep interest rates unchanged, if the oil price rise continues for a prolonged period, additional tightening is likely unavoidable. The Fed is expected to maintain the current interest rate of 5.25?5.5% at the FOMC meeting on the 19th?20th, while delivering a hawkish message through the dot plot and press conference.

This content was produced with the assistance of AI translation services.