As 2023 draws to a close oil prices are increasingly likely to rise into 2024, which could hit your investment portfolio. File Picture / Independent Newspapers.
As 2023 draws to a close oil prices are increasingly likely to rise into 2024, which could hit your investment portfolio, according to Nigel Green, CEO of the deVere Group.
Green, is speaking out after Saudi Arabia says that oil production cuts can “absolutely” continue past the first quarter of 2024 if necessary, and amid growing tensions in the Red Sea.
“The OPEC+ reductions to oil production announced in early December of more than 2 million barrels a day - half of which come from Saudi Arabi - could run past the first quarter, according to the country’s Energy Minister”
He says that although the cuts have had little impact on prices so far, it could be reasonably expected that as the cuts continue, they will begin to fuel price rises, especially as there’s no obvious sign that Saudi Arabia are in a rush to remove the reductions to the oil they send to the rest of the world.
“Another factor is the potential disruption to oil supplies, with reports saying that attacks on commercial shipping routes in the Red Sea are on the rise. The oil market has to date seemingly brushed off the increasing fears of soaring disruption, but the Red Sea is critical – all oil from the Middle East to Europe goes through it – and there are heightening issues in the region,” Green notes.
In early November RMB chief economist Isaah Mhlanga noted that the Hamas-Israel war will have a significant impact on global markets as these markets have not factored in the risks associated with the war.
This could send oil prices up even higher, according to the economist.
In his Sunday Times column, Mhlanga noted that he thinks the “markets are mispricing by assuming a confined conflict, oil and the broader market are not pricing this currently, a direct conflict between Iran and Israel will imply a shock to oil markets well above $130 a barrel.”
Green notes the impact the high oil prices will have on other areas of our economy.
“Rising oil prices often lead to increased production costs across various industries. As businesses face higher expenses for transportation and raw materials, these costs are frequently passed on to consumers, contributing to inflationary pressures,” Green adds.
“Also, oil is priced in US dollars, and as oil prices rise, countries that are net importers of oil experience an increase in their trade deficits. This can lead to depreciation in the value of their currencies, affecting foreign exchange markets. Investors holding assets denominated in these currencies could experience declines in the value of their portfolios.”
Green argues that South Africa and the globe will see a growing likelihood for oil prices to rise over the next six months due to the possibility of the extension of production cuts and increasing geopolitical tensions.
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