Oil Prices Expected to Remain Steady Due to Strong Global Economy

According to a poll of economists conducted by Reuters, the global economy is expected to continue its strong performance. This is viewed as positive for oil prices, but there are implications that could keep prices in a range-bound pattern. The respondents in the poll anticipate that global GDP growth could reach 2.9% this year. As a result, central banks may refrain from cutting rates, meaning borrowing costs will remain high for an extended period.

Citi’s global chief economist, Nathan Sheets, acknowledged the surprising resilience of the global economy, particularly in major economies like the U.S., China, and Europe. The growth has exceeded initial expectations, and the economy is considered to be solid at the moment. This positive outlook suggests that economic conditions are favorable for strong oil demand.

However, there are concerns about the impact of elevated inflation on oil demand. Higher benchmark rates could contribute to inflation, which might hinder oil demand growth. As a result, Brent and WTI prices are expected to stay within a certain range unless there is an escalation in the Middle East that threatens oil supply.

The World Bank recently warned about the potential for oil prices to exceed $100 per barrel in the event of an escalation in the Middle East. An increase in oil prices could lead to persistent inflation, which would impact interest rates and economic stability. The chief economist at the World Bank emphasized the vulnerability of the global economy to an energy shock, stressing the importance of avoiding a major disruption in oil supply that could undo progress made in reducing inflation.