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CHART 1 • Oil seems entrenched above $100
The Iran war has raised energy prices everywhere. A huge amount of oil comes out of the Persian Gulf, and most of it goes to Asia. If the Strait of Hormuz gets shut, buyers in Asia, Europe and elsewhere will all bid for the same, more limited global oil supply.
The place where this really hurts is diesel. Now, I know I’ve mentioned this before, but this is one of the biggest cost-push factors for inflation coming out of this crisis.
Diesel fuels trucks, ships, farm machinery and construction equipment. It also heats homes and runs backup generators. So when diesel gets more expensive, the cost of moving food and goods goes up, and shop prices follow a few weeks later. In other words, the cost of living rises.
Source: Eeagli
As the chart shows, ceasefires haven’t worked. There is a real risk that oil prices eventually get entrenched above $100. Oil is now 60% higher than in early August. The concern is that it stays there, and that this feeds through into economies around the world, hitting GDP growth and inflation.
Paid subscribers get access to the other four charts: record US diesel, inflation near 3%, the Federal Reserve’s rate reversal and rising Treasury yields. Together, they show how an energy squeeze becomes a broader cost-of-money problem.
