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Oil Prices Stabilize, But Base Effect Continues to Drive Inflation

ECONOMYOil Prices Stabilize, But Base Effect Continues to Drive Inflation

Over the last 30 days, the price of Brent crude oil has fluctuated between $81.80 and $90.38 per barrel, settling above $82 in mid-May, close to its monthly low. Despite the recent dip, the price remains significantly higher compared to the six-month low of $72.43 and the peak of $92.16.

Since the beginning of the year, Brent crude has increased by over 7%. “A few weeks ago, we were paying nearly $90 per barrel of Brent crude oil, so the current price, about $10 lower, is good news for month-to-month inflation,” said Michał Stajniak, an expert from XTB, in an interview with MarketNews24. “However, a year ago, prices were closer to $75, so the base effect will again drive year-over-year inflation higher.”

Looking forward, we should not expect further significant drops in oil prices. Speculations suggest that OPEC+ might extend voluntary production cuts into the second half of 2024, likely to be decided on June 1st. This is particularly important as the upcoming vacation season is expected to increase demand, leading to a reduction in global oil inventories.

The macroeconomic situation is further complicated by recent statements from Federal Reserve Chairman Jerome Powell. Powell indicated that U.S. interest rates would remain at their highest levels in over two decades until clear evidence of a sustained decline in inflation emerges. This stance suggests a prolonged strength of the U.S. dollar and contrasts with potential easing signals from other central banks, such as the European Central Bank.

“We should not expect the Fed to cut interest rates in June; it is more likely that something might happen in September or perhaps not until November,” commented the XTB expert. “By then, we will have a lot of new data that could change the Federal Reserve’s outlook.”

Market expectations have shifted significantly. Investors now anticipate just over one rate cut, compared to the 5-6 cuts expected at the beginning of 2024.

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