As OPEC+ members meet today, they are likely to stick to their current policy of moderating output increases.
Notwithstanding, analysts stated that this supply increase may not be able to stop oil prices from reaching the financially and psychologically demanding price of $100 per barrel due to the extremely tight demand for the product and the unstable situation in Ukraine, Fortune reported.
It is also possible to end the young work revolt behind the Great Resignation and stop a host of other second-order economic effects.
“Lower-income groups are vulnerable to higher energy costs,” said UBS economist Paul Donovan.
“There could be some peculiar indirect effects,” to oil hitting $100 a barrel.
A rise to $100 a barrel would not only exacerbate inflation, Donovan said, but will also slow down the job turnover rate and slow the Great Resignation.
As he pointed out, for those in the TikTok generation (16-24 years old) in the U.S.“gasoline is a disproportionate amount of spending for this group.
“Higher oil prices may encourage a return to the conventional jobs market.”
How Prices Got So High
Oil was being traded at $89 a barrel on Wednesday, its highest price since October 2014, with analysts and banks forecasting the price will continue to rise.
According to Bill Fitzpatrick, managing director and portfolio manager at Logan Capital, $100 oil prices are a distinct possibility this year, driven by both strong demand and minimal gains on the supply side.
It’s all about scarcity, oil pricing analyst Stephen Schork stated on Bloomberg Markets.
Prior to COVID, the U.S. produced 13 million barrels of crude oil a day, but now produces 1.5 million barrels less.
“There is no increase because now the mantra is ‘Clean up your balance sheet, clean up your debt, and decarbonize.’”
Energy Aspects reported that OPEC+ producers are struggling to meet production targets because storage tanks are running low on reserves.
“Tank bottoms are in sight across crude and products worldwide already,” it said.
The combination of low storage and heightened anxiety about a Russian invasion of Ukraine, as well as unplanned outages in Libya, Kazakhstan, and Ecuador further declined supply.
Strong demand, coupled with weak supply, has pushed up prices even further. Due to the Omicron variant of COVID-19, oil demand returned sooner than expected, and most countries plan to ease restrictions as well as an expected resurgence in air travel.
Demand Destruction
“It isn’t in OPEC+’s best interest to see prices go through $90 [a barrel] this year and move higher,” BCA Research analyst Bob Ryan told Barron’s.
Moreover, he said that demand for oil is likely to fall if prices are high, “especially if the [U.S. dollar] remains strong.”
As the price of oil climbs, the prices of gas and goods rise along with it, complicating efforts to tame inflation.
“It could be the cherry on the inflation cake if we don’t get a moderation in energy prices,” Pictet Wealth Management strategist Frederik Ducrozet, said to Reuters.
Managing rising energy bills may require higher wages, which has a knock-on effect on the job market.
In turn, this could cause workers to demand higher wages, resulting in a sticky inflation environment, said Société Générale top inflation strategist, Jorge Garayo.
According to Donovan from UBS, workers who quit their jobs during the pandemic could turn to side gigs to return to a conventional job market.
