The oil price is on the rise. In the summer of 2017, one barrel of black gold cost about $46, now the price is a fraction below $70. That is the highest level since the end of 2014, the year in which the oil price fell from $115 to $46,50 in just a few months. Will the oil price return to spring 2014 levels?
It seems unlikely that oil prices will rise by $50 per barrel in the near future. The prospects for the relationship between supply and demand are not such as to expect such an increase. That said, a rise in oil prices towards $80 in the coming quarters would not be surprising.
Geopolitical factors
First of all, there is a particularly delicate geopolitical situation in the world. An important source of this is Washington, where President Donald Trump is picking fights with one country after another.
In recent weeks there has been quite a bit of noise on the lines with Beijing and Moscow, capitals of two other world giants. Trump's recent appointment of John Bolton as his chief security adviser is also in line with this trend. Bolton was the biggest supporter of American invasions in Iraq, for example, in previous American administrations and has recently advocated bombings of North Korea and Syria. In the event of geopolitical unrest, the oil price may rise further.
Supply and demand
Secondly, there is the fact that the agreements between OPEC and important non-OPEC countries, such as Russia, have brought the supply of oil closer to demand. That agreement will remain in effect for the time being. In addition, continued economic growth in the world continues to increase the demand for oil. This also points in the direction of a higher rather than a lower oil price.
IPO
Finally, there is the planned IPO of Aramco, the oil giant from Saudi Arabia. That IPO, the largest ever, was planned for the end of this year but was recently postponed until sometime in 2019. The reason? The oil price is not high enough for the Saudis to cash in on some of the shares. In other words: one of the most powerful oil countries in the world thinks $70 per barrel is too low.
The Bloomberg news agency recently reported, based on conversations with people who talk directly to Saudi Arabia's leaders about oil prices, that the country will go ahead with the IPO when a barrel of oil costs around $80.
Influence on interest
Because of all this, it would not be surprising if the increase in oil prices that started in the summer of last year continues on balance in the near future. This in turn could have major consequences for interest rate policy, especially in the United States. If the oil price were indeed to rise further, US inflation would also rise further. This would more or less force the Fed to raise official interest rates more often this year and perhaps even next year than the market currently thinks.
How strongly such a rise in the oil price would affect the ECB's interest rate plans depends largely on how the value of the euro will develop. The eurozone has been spared upward pressure on oil inflation in recent months. This is because oil, expressed in euros, has hardly risen in price thanks to the stronger euro.
Currency
Oil is traded in dollars. If the euro strengthens against the US currency, this means that Europeans need fewer euros to buy one dollar and therefore fewer euros to buy a barrel of oil.
A good rule of thumb is that if the euro continues to strengthen against the dollar in the near future, the ECB may have the luxury of not changing the interest rate plans (which now amount to raising interest rates sometime in the summer or autumn of 2019). If, on the other hand, the EUR/USD rate drops in the coming months, the ECB may have to bring forward the date of the first interest rate increase since 2011.