On November 10, 2014, 1 barrel of oil last cost about $82. However, that was until today (Friday, October 5, 2018). About 1 year ago, the price was still at $55.
One reason for the increase in price it is expected that the largest oil producing countries will not take measures to stop the rise in oil prices. To do that, they could ramp up their production. More supply with the same demand would actually push the price down.
Saudi Arabia, Russia and other major oil countries refuse to do so. This is not surprising, because after years of very low oil prices, they want to fill their treasury again. Moreover, in recent years they have done all kinds of things to increase the price. Now that that is happening, it was not expected that they would want to stop it.
The fact that the United States (US) recently jettisoned the agreement with Iran and imposed sanctions on the regime in Tehran also plays a role. Part of this is that it is more difficult for Iran to sell its oil. Iran is an important oil country, so the loss of supply pushed the price up. Finally, there is the high economic growth in the world. High growth means increasing demand for oil.
If we take the above together, we see that demand on the oil market increased while the method decreased. The law of supply and demand, the cornerstone of economics, says that in that case the price can only go in one direction and that is up.
Economic growth
The high economic growth appears to be continuing, which means that the demand for oil will not decrease in the near future. The major oil producing countries have no intention of extracting more oil from the ground and the sanctions on Iran have yet to take effect. So it's no wonder that some analysts predict that the price could break through the $100 mark in the coming months.
Even if that does not happen, the consequences can still be quite serious. If there's one thing Americans are allergic to, it's rising costs at the pump. That seems to be possible. This is a worrying development for American President Donald Trump, because the US will elect a new parliament on November 6. Trump only has a razor-thin majority; that the American spends more dollars on filling his tank can easily cost votes. So much that that majority could be lost.
Inflation is being boosted
In monetary terms, an increase in the price of oil means that the inflation will be accelerated in the coming months. In the US it is more than 2%, just like in the eurozone. The central banks are aiming for 2% per year. Between October 2017 and April 2018, the price was between $55 and $70. Since the calculation of inflation compares the oil price with that of last year, this means that (even if the price were to remain unchanged between now and spring 2019) there could be a significant upward pressure on inflation.
If inflation rises, investors may expect that the US Central Bank (Fed) and the European Central Bank (ECB) will increase their interest rates more often or sooner. The ECB recently said that the first rate increase is expected in the autumn of 2019 at the earliest. However, if inflation continues to rise (which has been at too high a level for 4 months, given the bank's target), then the bank could simply be forced to increase interest rates sooner.
Personally, I am not surprised if the ECB will increase the official interest rate in the summer of 2019. On the one hand because of inflation developments, but on the other hand also because current ECB President Mario Draghi will not go down in history as the only president who has never raised interest rates.
Future boss of the ECB
In this way he would give his successor, probably a German, the freedom to avoid having to raise interest rates immediately after taking office. If the future German ECB boss were to immediately make borrowing money more expensive, that would confirm all prejudices about German central bankers. It would also fuel fears in many euro countries (such as Italy) that they would have to take higher interest rates into account.
The sounds that are already often heard (that the eurozone is dominated by Germany and that the country imposes its policy wishes on other countries) would be heard even more often and louder. That in turn is not really conducive to good relations between the euro countries.