Military tensions between Israel and Iran, along with global supply shocks, are intensifying fears of a commodity-driven inflation resurgence. Mexico's decision to reduce crude exports, stranded Russian cargoes, Houthi rebel attacks on tankers, and OPEC's production cuts are all contributing to a surprise supply disruption. The oil rally threatens to push Brent crude to $100 for the first time in almost two years.
When oil jumped above $90 a barrel just days ago, military tensions between Israel and Iran were the immediate trigger. But the rally’s foundations went deeper — to global supply shocks that are intensifying fears of a commodity-driven inflation resurgence.
For oil, “the bigger driver right now is on the supply side,” Amrita Sen, founder and director of research at Energy Aspects Ltd., said in a Bloomberg Television interview. “You have seen quite a few pockets of supply weakness, and demand overall on a global basis is healthy.” Canadian Cold Lake oil priced at the Gulf Coast traded at the narrowest discount to WTI in almost a year. Key indicators for Middle Eastern medium-sour crude, such as Oman and Dubai contracts, are rallying too.
Oil shipments from Mexico, a major supplier in the Americas, slid 35% last month to their lowest since 2019. The supply pinch could become even more acute in the weeks ahead. With President Nicolas Maduro showing no sign of heeding promises to move toward free and fair elections, the Biden administration could reimpose sanctions this month.
The supply squeeze comes as demand is ramping up. US refiners are preparing to boost fuel production for the summer, when millions of Americans take to the roads and gasoline consumption peaks. Petrol stockpiles on the populous East Coast are tightening and manufacturing activity in the US and China is also signaling a boost in fuel use. In Asia, refining margins are around 50% higher than the five-year seasonal average, suggesting healthy demand.
Oil Rally Supply Shocks Inflation Mexico Crude Exports Russia Houthi Rebels Tankers OPEC Production Cuts Brent Crude US Summer Driving Season
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