Released October 05, 2022 | SUGAR LAND
en
Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--The head of the Federal Reserve Bank in New York said softening of crude oil prices through September might not be enough to tame runaway inflation, comments that may be a concern given recent OPEC stimulus.
Commodity prices are the main factor behind the spike in global inflation. The latest reading in the U.S. economy finds consumer prices increased 8.3% over the 12-month period ending in August. That's down a bit from previous months and was attributed to a 10.6% decline in the gasoline index used to calculate consumer prices.
But prices are still high, and so is inflation. All energy goods used in the consumer price index cost 27% more than they did last year. For just fuel oil alone, prices are nearly 70% higher than year-ago levels.
John C. Williams, the president and chief executive of the Federal Reserve Bank of New York, said the Russian war on Ukraine has been devastating for consumers. Crude oil and natural gas prices are supported by sanctions imposed on Russia, as well as a retreat from Russian supplies, and that's trickling down to the consumer level.
For Williams, however, some relief may be on the horizon as commodity prices have been in retreat as of late. West Texas Intermediate, the U.S. benchmark for the price of oil, shed 11% during September to finish out the month at $79.49 per barrel.
"Absent further supply disruptions, I expect slowing global growth, in part reflecting tighter monetary policy here and abroad, will continue to reduce demand for these products," he said. "This should put downward pressure on commodity prices and help ease inflationary pressures, especially for goods and services that are heavily reliant on commodity inputs."
That said, Williams said lower commodity prices might not be enough to bring inflation back to its 2% objective. And based on industry forecasts, crude oil prices may have bottomed out and are on the rebound.
Over just two trading days in October, WTI gained back most of what it lost in October, rallying more than 7% on the week so far. That support came from the expected decision from the Organization of the Petroleum Exporting Countries and their allies, a group known as OPEC+, to trim 1 million barrels per day (BBL/d) from their collective output come November.
Markets are already tight and the decision from OPEC+ will only make matters worse. Ole Hanson, the head of commodities strategy at Saxo Bank in Denmark, said in a research note that commodity prices have indeed softened over recent months, but it's only a temporary lull.
"During the final quarter prices are likely to remain challenged at times resulting in a potential lower range in Brent crude between $80 and $100 per barrel," he wrote.
Those higher prices may boost investments for energy companies at a time when global supplies are scarce. Lingering supply-chain issues, higher costs in general and a shortage of skilled labor may be offsetting some of the support from prices, however.
In Texas, home to most of the nation's oil, the Federal Reserve Bank of Dallas said the economy is cooling.
"One silver lining of the economic slowdown, as well as easing supply chains, is that manufacturers have been able to work down order backlogs that were prevalent in 2021," a September report read. "Shipments and inventories have risen, and unfilled orders are down."
But the return of $100-something oil means the silver lining may indeed be thin. On top of higher lending rates, the expected increase in energy prices could push the global economy to the breaking point.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 trillion (USD).
Commodity prices are the main factor behind the spike in global inflation. The latest reading in the U.S. economy finds consumer prices increased 8.3% over the 12-month period ending in August. That's down a bit from previous months and was attributed to a 10.6% decline in the gasoline index used to calculate consumer prices.
But prices are still high, and so is inflation. All energy goods used in the consumer price index cost 27% more than they did last year. For just fuel oil alone, prices are nearly 70% higher than year-ago levels.
John C. Williams, the president and chief executive of the Federal Reserve Bank of New York, said the Russian war on Ukraine has been devastating for consumers. Crude oil and natural gas prices are supported by sanctions imposed on Russia, as well as a retreat from Russian supplies, and that's trickling down to the consumer level.
For Williams, however, some relief may be on the horizon as commodity prices have been in retreat as of late. West Texas Intermediate, the U.S. benchmark for the price of oil, shed 11% during September to finish out the month at $79.49 per barrel.
"Absent further supply disruptions, I expect slowing global growth, in part reflecting tighter monetary policy here and abroad, will continue to reduce demand for these products," he said. "This should put downward pressure on commodity prices and help ease inflationary pressures, especially for goods and services that are heavily reliant on commodity inputs."
That said, Williams said lower commodity prices might not be enough to bring inflation back to its 2% objective. And based on industry forecasts, crude oil prices may have bottomed out and are on the rebound.
Over just two trading days in October, WTI gained back most of what it lost in October, rallying more than 7% on the week so far. That support came from the expected decision from the Organization of the Petroleum Exporting Countries and their allies, a group known as OPEC+, to trim 1 million barrels per day (BBL/d) from their collective output come November.
Markets are already tight and the decision from OPEC+ will only make matters worse. Ole Hanson, the head of commodities strategy at Saxo Bank in Denmark, said in a research note that commodity prices have indeed softened over recent months, but it's only a temporary lull.
"During the final quarter prices are likely to remain challenged at times resulting in a potential lower range in Brent crude between $80 and $100 per barrel," he wrote.
Those higher prices may boost investments for energy companies at a time when global supplies are scarce. Lingering supply-chain issues, higher costs in general and a shortage of skilled labor may be offsetting some of the support from prices, however.
In Texas, home to most of the nation's oil, the Federal Reserve Bank of Dallas said the economy is cooling.
"One silver lining of the economic slowdown, as well as easing supply chains, is that manufacturers have been able to work down order backlogs that were prevalent in 2021," a September report read. "Shipments and inventories have risen, and unfilled orders are down."
But the return of $100-something oil means the silver lining may indeed be thin. On top of higher lending rates, the expected increase in energy prices could push the global economy to the breaking point.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 trillion (USD).
