Crude oil started the week posting its largest increase ever, with Brent crude oil jumping 27% at the opening of the session. New forecasts suggesting prices could soon reach $150 per barrel now appear increasingly plausible.
Oil prices continue to rise and, on Monday morning, were trading above $100 per barrel in London and New York City, reaching levels not seen in four years, since the beginning of Russian invasion of Ukraine. The sharp surge in prices is linked to the worsening conflict in the Middle East and threatens to send shockwaves through the global economy through higher fuel costs that could last for weeks or even months, fueling inflation.
Around 08:00 in Luanda, Brent—Angola’s export benchmark—was up 16.34% to $107.8 per barrel, after having surged 27% earlier in the day during Asian trading, reaching $117.7, the largest single-day increase ever recorded in oil prices. At the same time, futures for the U.S. benchmark West Texas Intermediate (WTI) rose more than 14% to $107.7 per barrel, after briefly climbing over 31% at the start of the session to $119.5 per barrel.
On one hand, this is good news for Angola. The longer crude prices remain at these levels, the greater the likelihood that the average price will exceed the $61 per barrel assumed in this year’s State Budget (OGE), which forecasts a budget deficit of 3.8 trillion kwanzas, equivalent to 2.8% of GDP. Higher prices therefore tend to translate into greater oil revenues and, consequently, greater financial room for the State.
On the other hand, rising oil prices also have adverse effects. Higher energy costs tend to slow global economic activity and increase inflationary pressures worldwide, a phenomenon that eventually affects the Angolan economy. Highly dependent on imports to supply its domestic market, the country ends up importing part of this inflation.
In addition, fuel prices in Angola remain partially subsidized by the State through Sonangol. This means that higher international prices increase pressure on public finances and may reduce part of the gains obtained from rising crude prices.
It is also worth noting that oil futures almost reached $120 per barrel overnight. The surge was driven by the decision of Iraq, Kuwait and the United Arab Emirates—three major producers within the OPEC—to reduce crude production due to limited storage capacity.
These countries have been unable to export through the Strait of Hormuz because of Iranian threats against oil tankers, at a time when the war involving the United States and Israel against Iran shows no signs of easing.
Source: Expansão
