Rising oil prices have been a hot topic on Wall Street, with speculation surrounding how high crude can go before it starts to negatively impact demand. Currently, West Texas Intermediate (WTI) is trading above $92 per barrel, while Brent crude futures are over $95 per barrel.
Experts believe that consumer driving habits will only change if crude oil prices hit $100 to $110 per barrel, and gasoline prices rise to $4.00 to $4.25 per gallon. Andy Lipow, president of Lipow Oil Associates, believes that only then will there be enough demand destruction to offset current levels.
Gasoline prices, currently at a national average of $3.88 per gallon, are pricing in supply imperfections and perfect demand. These prices are the highest they’ve been since 2023.
While energy prices have steadily increased since late June, experts such as Ed Morse, Citi’s global head of commodity research, believe that oil prices could reach $100 and stay there for a short period. However, increased supply from countries like the US, Canada, Brazil, Iran, and Venezuela could lead to a pullback in prices. It’s also possible that Saudi Arabia may reverse their production cuts if markets become too tight.
Some industry professionals, like Jay Hatfield, CEO at Infrastructure Capital Management, believe that WTI crude could trade above $100 before supply and demand factors start to overwhelm momentum. However, they still believe that prices above $95 per barrel will lead to substantial demand destruction and bring the commodity back to a fair value range.
Higher oil prices are raising concerns about the impact on the broader economy, especially as the Federal Reserve attempts to curb inflation. Energy prices, particularly gasoline prices, were the main cause of August’s higher-than-expected Consumer Price Index. The Federal Reserve is expected to hold interest rates steady, but there is still the possibility of one more rate hike this year.
Sources:
– Yahoo Finance
– AP Photo/David Zalubowski
– Ines Ferre – Senior Business Reporter for Yahoo Finance