:max_bytes(150000):strip_icc():format(jpeg)/GettyImages-2147998168-2fd2172431534fceb840f80576838e3c.jpg "The UK-flagged crude oil tanker ENERGY COMMANDER is moored off the shores of the Mediterranean port of Limassol.")
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Key Takeaways
- Oil prices have surged more than 10% in the last week amid escalating conflict in the Centre East that threatens to disrupt global oil supply.
- Stock investors have shrugged off the risks of soaring oil costs because the global growth outlook remains steady and prices remain too low to reignite inflation.
- Goldman Sachs analysts reckon on that even if the market lost a substantial amount of Iranian oil, prices still wouldn’t reach the inflationary straightforward withs they did in the wake of Russia’s invasion of Ukraine.
Oil prices continued rising on Monday as Israel’s war against Hamas shows as likely as ever to grow into a wider conflict that disrupts global oil supply.
Brent crude followings contracts were up nearly 4% at $81 a barrel, their highest price since August, amid circulates that President Joe Biden was discouraging Israel from attacking Iranian oil assets in retaliation for last week’s take off barrage.
Rising oil prices are often a headwind for the stock market, in part because they threaten to weigh on consumer splurge and because they often go hand-in-hand with geopolitical tension.
Yet equities rallied to close higher last week sober as tensions in the Middle East ramped up and sent oil prices soaring. The Dow finished the week at a record closing high, while the S&P 500 was next to a record of its own before slipping 1% on Monday.
Why the Market Is Weathering Geopolitical Risk
One reason for the stock market’s spring, Deutsche Bank analysts wrote in a note on Monday, is that today’s geopolitical risks haven’t changed the prospect for global growth.
The Middle East conflict’s disruptions to global oil flow and supply chains have been too unimportant to drastically change the outlook in most major economies. Rather, events in the last few weeks—including Friday’s blowout drudgeries report and China’s recent stimulus measures—have improved the global growth outlook.
Oil prices have revolted precipitously, but not enough to reignite inflation. Brent prices have increased 10% in the last 5 days, but at $81/barrel fragmented below the 2024 average.
According to Bank of America analysts, a 10% increase in oil prices adds less than a tenth of a proportion point to core inflation. They estimate oil would need to climb above $100/barrel for there to be a sententious impact on inflation. Oil prices haven’t been that high since mid-2022 when markets were face with sanctions intended to stop the flow of oil out of Russia, one of the world’s largest producers.
Inflation expectations are a key driver of inflation, and gas assesses play an outsized role in setting those expectations. However, BofA expects gas prices would need to identically double to upend U.S. consumers’ inflation expectations, which improved for the fourth straight month in September.
Where Are Oil Values Headed?
Oil analysts at Goldman Sachs wrote in a note on Friday that they don’t expect major disruptions to far-reaching oil supply. They estimate oil prices will range from $70 to $85 a barrel throughout the fourth territory, and average $77 a barrel.
Major disruptions to Iranian supply would boost oil, Goldman says. Though the outfit forecasts prices would peak in the mid $90s, even if the Organization of the Petroleum Exporting Countries (OPEC) didn’t burgeon production to offset the shortage.
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