Five charts to start your day

Is global demand for oil about to outstrip supply?

War in the Middle East has increased the risk of a broader conflict that could disrupt the flow of oil, possibly leading to higher global oil prices and inflation. The US government is clearly nervous about this risk to the global oil supply and how it might become inflationary for the US economy.

The problem with this type of inflation is that it comes from supply constraints – in this case oil. The less oil there is on the global market, the more expensive it becomes, even if that oil is produced in the US: that is nature of a global oil market denominated in dollars.

Neither the US government nor the US Federal Reserve can do anything about this type of inflation. This is a form of inflation that isn’t caused by excess demand, so raising interest rates or even tax, would do little to tame it.

Further more, there is concern that demand will outstrip this supply as manufacturing activity picking up globally, both in China and the US. This could put further pressure on oil prices. As you can see in our first chart of the day, oil prices have been steadily trending upwards for months.

This has led the US to take some unusual steps. For instance, they have warned Ukraine not to attack Russian refineries because it might impact global oil prices. This is despite wide-ranging sanction being place on Russia after the country invade Ukraine.

Naturally, these calls have largely been ignored by Ukrainian, probably because US military funding for Ukraine has stalled, weaken US influence over Europe. But it just serves to illustrate that in this situation, the US’ only option to prevent this type of cost-push inflation, lies in geopolitical manoeuvring, even if that seems ineffective.

Source: Bloomberg

Coming up:

• The US now produces more oil than Russia and Saudi Arabia

• Many fund managers now expect a “no landing” scenario for the US

• Central banks have been buying gold since Russia’s invasion of Ukraine

• The US yield curve is experiencing a bear-steepening…again

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