Why are some investors sweating bullets over the rising oil prices?

The short answer is inflation and interest rates.

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Australian investors are well aware of skyrocketing petrol prices these days, with the WTI crude oil price reaching its highest level in 12 months and Brent crude trading at its highest price in 2023.

The strength in oil prices has some investors worried that this will push inflation higher, potentially resulting in central banks around the world raising interest rates again.

Let's look into what's happening.

Rising oil prices stoke interest rate fears

WTI crude is trading at about US$91.70 per barrel right now, while the Brent crude oil price is about US$93 per barrel.

The WTI oil price is up about 10% in September and about 30% over the quarter.

Brent crude futures are up about 8% in September and more than 20% over the quarter.

Analysis by Trading Economics attributes the recent rises to tightening global supply, primarily due to OPEC production cuts, along with news this week that US stockpiles declined by more than expected.

OPEC will next meet on 4 October.

Concerns about oil prices come on top of indications from US Fed Reserve officials that rates would stay higher for longer than previously forecast, and one more rate rise was already likely.

Wells Fargo's Sameer Samana says:

The thing is we are going to have a recession probably by the end of the year.

If you look at what the GDP data this morning showed, the consumer is already slowing and that's before oil prices started to do what they've been doing recently.

 In an article on Reuters, Robert Pavlik, senior portfolio manager at Dakota Wealth Management, said:

Investors are going to be even more worried that we could enter into a recession as the cost of borrowing is increasing and corporate margins will be squeezed.

Eric Kuby, chief investment officer at North Star Investment Management Corp, doesn't think US interest rates will stay higher for longer, but comments:

Certainly, the combination of the Fed's jawboning and the spike in oil prices are creating headwinds for equities.

The US Fed held interest rates steady at 5.25% to 5.5% last week.

The Reserve Bank of Australia has kept interest rates on hold for three consecutive months.

Which ASX shares are benefitting from rising oil prices?

The ASX 200 energy shares have had a positive week amid the lift in oil prices.

  • The Woodside Energy Group Ltd (ASX: WDS) share price has risen 0.58% over the past five days to close on Friday at $36.39.
  • The Santos Ltd (ASX: STO) share price closed 3.48% higher over the same period at $7.89.
  • The Beach Energy Ltd (ASX: BPT) share price was up 2.19% to $1.64 at the close.

By comparison, the S&P/ASX 200 Index (ASX: XJO) rose by 0.21% over the five days.

Should you be sweating bullets?

The Fool advocates long-term investing.

Rather than focusing on short-term sentiment, long-term investors should just keep their eye on company performance, industry trends, and long-term macroeconomic factors and themes.

Economies are moveable feasts, and a typical multi-decade investor will see it all during that time!

Motley Fool contributor Bronwyn Allen has positions in Woodside Energy Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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