Recently, international oil prices have experienced significant increases. The WTI crude oil futures price surged to $73.284 per barrel at the beginning of 2024, partly due to short-term supply-demand gaps. Disruptions in Libya, geopolitical risks in the Middle East, and increased freight costs due to the Red Sea incident have all supported oil prices. Additionally, the continuation of OPEC+ production cuts suggests a temporary shortage in global crude oil supply.

source：Investing
Data as of May 10,2024

Economic Impact of Rising Oil Prices:
1.Inflation Pressure:
Rising oil prices directly increase inflation rates. Analysts predict that the short-term rebound in oil prices may cause a sudden spike in inflation rates in Europe and the United States, affecting market expectations for interest rate cycles. The rise in oil prices leads to global inflation, as crude oil prices are seen as an "inflation anchor." When oil prices rise, they transmit downward through the PPI industry chain, affecting prices in sectors such as transportation, agriculture, textiles, and telecommunications, ultimately creating inflationary pressure.

2.Industry Impact:
Rising oil prices have varied effects on different industries. Industries with high oil consumption intensity, such as raw material manufacturing, chemical fiber products, and battery manufacturing, are significantly affected. Meanwhile, industries with strong price transmission capabilities, such as rubber and plastic products and textiles, can pass on cost increases to consumers, thereby mitigating profit pressures.

3.Economic Growth:
Rising oil prices have a negative impact on global economic growth. Compared to $60 per barrel in 2019, if the international oil price center remains at $90 per barrel, it may affect approximately 1.4% of GDP growth. Additionally, research by Yicai indicates that for every 1% increase in oil prices, China's real GDP growth rate is expected to decrease by about 0.03%.

4.Geopolitics and Oil Prices:
Geopolitical events significantly affect oil prices. Geopolitical conflicts not only directly impact crude oil supply but may also cause market concerns about future supply reductions, thereby driving up oil prices. Additionally, the exchange rate of the US dollar and speculative trading are financial factors influencing oil prices.

5.Electric Vehicles and Energy Transition:
Rising oil prices also promote the development of electric vehicles. As oil prices continue to rise, the low operating costs of electric vehicles become more apparent, potentially driving more consumers to switch to electric vehicles and accelerating the transition of energy consumption structure.

In summary, the impact of rising oil prices on the economy is comprehensive and complex, affecting inflation rates, various industries, and potentially suppressing economic growth. Moreover, geopolitical events and financial factors also influence oil prices, thereby affecting various aspects of the economy.

Trends in Oil Price Changes in 2024:
Looking ahead to 2024, the global economy is under pressure. According to analysis by Finance and Economics, the dominant factor driving medium-term fluctuations in oil prices is demand. The latest report from the International Energy Agency indicates that global oil demand growth in 2024 will be lower than OPEC's expectations, with an expected growth of 1.1 million barrels per day, indicating a slowdown in oil demand growth. The recent decline in oil prices has been attributed by OPEC to market traders' interventions and excessive anxiety. To stabilize the market, OPEC plans to further reduce oil production with its allies in the first quarter, with daily cuts reaching 900,000 barrels.

Given that OPEC+'s production cuts may be relaxed, the central position of international oil prices is expected to trend downward. However, the US dollar may enter a rate-cutting cycle, coupled with the continuation of the OPEC+ production cut framework and low global inventories, the expected decline in oil prices may be limited, and the average price of Brent crude is expected to remain in the range of $80 to $85 per barrel.

In 2024, global oil demand growth is expected to narrow, with the majority of incremental demand concentrated in developing countries. The global economic growth rate is projected to slow down due to a high-interest-rate environment, leading to a slight contraction in oil demand in developed economies, while developing countries like China and India are expected to continue driving growth in oil demand.

The production cut agreement is expected to remain crucial for balancing market supply and demand, but the enforcement may weaken. OPEC+ controls most of the global remaining production capacity, but there are internal disagreements regarding further production cuts. Meanwhile, non-OPEC+ countries are also expected to slow down their production increase, but overall supply will still continue to grow.

Nevertheless, it is expected that the international oil market will experience a slight surplus in 2024, but inventory levels will remain in a lower range, providing support for oil prices. The US dollar may enter a rate-cutting cycle, which will help boost commodity prices, thus having a positive impact on oil prices. Considering these factors, it is expected that international oil prices will exhibit a downward fluctuation trend in 2024, but with limited declines.

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