Oil is the investment that keeps on pumping
Oil continues to be the investment that keeps on pumping with oil prices rising as high as $105 in recent weeks. In 2022, the SPDR S&P 500 Oil & Gas Exploration ETF (NYSE:XOP) is up 19%.
What’s the big deal? Sanctions on Russian oil — seen as a last resort — could trigger even higher oil prices and really hurt Russia’s economy. O&G made up 60% of Russian exports in 2019.
- The US and Europe have been reluctant on oil sanctions — which could hurt their own economies and push inflation up.
- Even without sanctions, O&G supplies are already being disrupted — with major oil companies pulling out of Russia and financial sanctions making it harder to do business.
Why not just pump more oil? It’s complicated and political. Major oil producing nations — who benefit from higher oil prices — are reluctant to increase production.
- With the future of oil uncertain, many are unwilling to make new investments — which could take years to produce new supply.
- Oil producers have been burned before by rising oil prices, when they did increase production — just for prices to collapse shortly after.
To make matters trickier, Russia is the co-leader of OPEC+ — a group of major oil producing nations.
Yesterday, the International Energy Agency — a group of 30 countries — agreed to release 60million barrels of oil into the market from its stockpile reserves.
- This is the first coordinated release since the 2011 Libyan Civil War which disrupted oil supply.
- In November, Biden released strategic oil reserves — which failed to put a lid on oil prices.
High alert: Goldman thinks the market is underestimating the risks of higher oil prices — seeing long-lasting impacts even if war tensions ease — and raised their 2022 US inflation expectations from 3.1% to 3.7%.
On watch: US CPI (Inflation) report will be released on Friday, March 10.