Brent approaches $120 as OPEC+ sticks to plan
The Organization of the Petroleum Exporting Countries and allies decided on Wednesday to maintain a modest output increase in April, hiking production by 400,000 barrels a day.
The group's statement said: "Current oil market fundamentals and the consensus on its outlook pointed to a well-balanced market, and that current volatility is not caused by changes in market fundamentals but by current geopolitical developments." However, the statement didn't mention the Russian Ukraine crisis and the supply risk it carries.
Western sanctions have so far avoided the Russian commodities market. Still, with global companies pulling out from the energy industry and European refiners trying to find different sources for supplies, there's a high risk of disruption to Russia's massive oil exports.
OPEC remains well short of what it promised to deliver due to several members missing production targets, so even the promised additional 400,000 barrels a day may not be achieved.
The markets responded to the latest developments, sending Brent crude above $118 a barrel, the highest since early 2013, and WTI trading near 2011 highs of $114.80. There is no price ceiling for oil insight if the war doesn't end soon.
Not only the price of oil surged to a new multiyear high. Wheat is trading at a 14-year high, corn trading near a 10-year high, and some industrial metals are flirting near record highs. As a result, inflation which is already worrying policymakers across the globe may be out of control. That brings the risk of stagflation, in which a period of high prices is accompanied by low economic growth before we fall into a recession.
Financial markets are not reflecting these risks so far, with stocks rallying across the board yesterday. Instead, investors seem to be attempting to buy the dips, a strategy that worked very well over the past 12-months. But risks currently in play are of different nature than the past year, and we may see further deep pullbacks before it becomes attractive for the long-term investors.