Sun. Oct 1st, 2023
    The Impact of Rising Oil Prices on the Economy

    Gasoline prices are on the rise as aggressive oil supply cuts in Saudi Arabia and Russia, along with flooding in Libya, have caused crude prices to increase. This has implications for various sectors of the economy and raises concerns about inflation, interest rates, and consumer spending.

    While rising oil prices typically lead to higher inflation and the possibility of increased interest rates by the Federal Reserve, some experts believe that the effects may not be as severe this time. David Kelly, chief global strategist at JPMorgan Asset Management, believes that the trend over the next year or two will not be higher oil prices. He cites several reasons for this, including the fact that the price of everything has gone up and the US has reduced its Strategic Petroleum Reserve. Additionally, US production is growing rapidly, and the global economy is growing slowly, limiting demand growth for fossil fuels.

    Rising oil prices have historically been connected to recessions, as they squeeze consumer spending and can lead to tighter monetary policies. However, Kelly believes that the current spike in oil prices may not have the same impact on the economy. He emphasizes that inflation can go away without the price of gasoline falling, and he expects inflation to be below the Federal Reserve’s target by the fourth quarter of next year.

    Investors should consider opportunities in the energy transition, as the control of oil by countries like Saudi Arabia and Russia can impact the market and pose risks to US interests. The recent spike in oil prices highlights the need to invest in alternative energy sources.

    Sources: CNN article, David Kelly interview with Before the Bell