At the start of another central bank meeting in Washington, the price of oil has reached almost $90 per barrel, while the price of regular unleaded gasoline in the United States is approaching $4 per gallon. The spike in this most volatile component of the consumer price index pushed upward the index over the last twelve months, to 3.7 percent in August from 3.2 percent in July. Just the prices of gasoline and other fuels last month contributed more than 20 percent to the increase in the index.
According to the Paris based International Energy Agency which includes the most advanced economies, quoted in The Wall Street Journal (09/14/23), production cuts from the Organization of Petroleum Exporting Countries, since January, have reduced supply by 2.5 million barrels per day. This reduction has not been compensated by increases in production among other major exporters, such as the United States and Brazil, of almost 2 million barrels per day. Therefore, the combined production cuts from Saudi Arabia and Russia, of around 1.3 million barrels per day, have contributed to pushing crude prices to the highest level in the last 10 months.
Furthermore, the Agency anticipates that price volatility will persist, given the announcement by Saudi Arabia and Russia that production cuts will continue until the end of this year. The International Energy Agency said, “The Saudi-Russian alliance is proving a formidable challenge for oil markets.”