Oil prices rose on Monday following a major announcement. OPEC and its allies, including Russia, agreed to cut crude oil supply by more than one and a half million barrels per day. The Brent crude benchmark for Europe jumped 8% at the session’s start to about $86.44 a barrel, but later eased. The U.S. crude benchmark, West Texas Intermediate (WTI), followed a similar pattern. The market faced uncertainty about future moves and how these cuts would influence gasoline and diesel prices.
1. Why do oil prices rise?
Monday’s uptick reflects the production restraint agreed by OPEC and its partners. Analysts from Julius Baer note that price moves often mirror shifts in the futures market, where short‑term traders can push prices higher in the near term. They caution that near-term gains might fade if demand remains weak amid ongoing recession fears. The ultimate direction will depend on how demand evolves and how producers manage supply in the months ahead.
2. Why is demand key?
Higher consumption by households and a pickup in economic activity can tighten the market and push prices higher. Attention centers on China, where the economy is emerging from recent slowdowns and reopening effectively boosts demand. Yet if Western economies slip into recession, the combined effect could temper price gains. Market observers note there is no clear signal yet. Countries like the United States or Mexico could boost production or tap strategic reserves to counter price pressure, but the global response remains uncertain.
3. Can the spikes caused by conflict reappear?
Since the Ukraine crisis began, oil prices surged to around $120 per barrel on a number of days, with volatility continuing into the coming months. This week Brent hovered around the mid‑80s after OPEC’s announcement, a level that has been prone to change during the broader financial cycle. Analysts offer varying views. Some see prices gradually returning toward a long‑run equilibrium, while others, citing banks and investment houses, forecast higher targets later in the year. Market forecasts range from around $70 per barrel in a conservative scenario to near $100 in more optimistic projections.
4. How will these increases affect gasoline?
Gasoline and diesel prices reflect roughly 40% of the final pump price, with the remainder mostly due to taxes. The energy regulator notes a typical asymmetry: prices tend to rise quickly when crude climbs but fall more slowly as crude retreats. Crude derivatives react faster than the raw material itself, shaping how soon consumers see price changes. Analysts suggest any sustained rise will feed through over several days. An EAE Business School economist estimates a possible 5% increase in fuel costs in the coming weeks. In Spain, diesel and petrol prices have shown year‑over‑year and month‑to‑month movements, with regional differences driven by local taxes and pricing rules in effect before and after the crisis.
5. What effects can a price increase have on the economy?
Higher fuel costs raise overall inflation pressures, especially when monetary policy is tightening to curb price gains. In recent months, price moderation across electricity and other goods has influenced inflation dynamics. National statistics indicate shifts in inflation trends, influenced by energy costs within the broader price index. The interplay between fuel prices and inflation remains a key focus for policymakers and households alike, as economies adapt to evolving energy markets and policy responses.