- Brent crude oil price surged to the highest point this year.
- Saudi Arabia and OPEC+ cartel have continued their supply cuts.
- Crypto prices like Tron, Bitcoin, and IOTA will react to the latest US inflation data.
A key theme in the market this week is the soaring Brent crude oil price. The international oil benchmark surged to over $92 on Tuesday, the highest level this year. It has surged by more than 23% from the lowest level in June, meaning it has moved into a bull market. Other oil benchmarks like West Texas Intermediate (WTI) and Russian urals have also soared.
Supply and demand divergence
The main reason why the Brent crude oil price is soaring is the ongoing divergence in the industry. Demand is still growing as the economy bounces back, A recent report by the Energy Information Administration (EIA) said that demand had jumped to the highest level on record. The world is now consuming more than 95 million barrels per day.
Crude oil supply is still growing but at a slower pace than expected. While the US is operating at full capacity, OPEC+ members decided to slash their daily crude oil production by more than 1.3 million barrels per day.
Therefore, in economics, a price of an asset rises when there is elevated demand and supply constraints in the same period. This explains why most analysts now believe that the price of oil will rise to more than $100 per barrel soon.
The only solution for this crisis is for other major oil producers to ramp up their production. The US is working with Venezuela and Iran to bring in more oil to the market but their impact will be limited.
Implications for crypto prices
Crude oil and cryptocurrencies have no direct relationship at all. Crypto are digital currency while crude oil is energy. However, the two assets have major relations in the broad scale of things.
Higher crude oil prices lead to higher inflation since most items are transported by vehicles powered by oil. Therefore, the cost of production, manufacturing, and transport usually rises when oil is rising.
As such, there is a high likelihood that the soaring oil prices will push inflation higher. Central banks respond to high inflation by tightening the liquidity through rate hikes and quantitative tightening. Cryptocurrencies like Tron, IOTA, and Bitcoin tends to fall in a period of high rates.
In line with this, traders will pay close attention to the upcoming US inflation data. Economists expect the numbers to show that the headline consumer price index (CPI) ticked upwards slightly in August. A stronger-than-expected data will lead to more crypto weakness. Some of the top cryptocurrencies to watch will be Bitcoin, IOTA, Tron, and Ethereum.
