Oil prices have remained in a narrow range between $80 to $85 per barrel of Brent since last year. Despite the fears of a major oil supply shock from Russia after the EU embargoes and the G7 price caps on Russian crude oil and petroleum products came into effect, oil prices did not surge.
Russia is rerouting its oil exports to Asia, and Europe is buying more crude from the Middle East, Asia, and the United States. Oil prices are currently being driven by inflation, manufacturing, employment, and business activity data from the United States and China. The Federal Reserve is closely watching economic data to determine whether to accelerate or slow down interest rate hikes. Meanwhile, China is expected to see a rebound in economic growth and oil consumption this year after three years of zero-Covid lockdowns. The opposing economic forces of the United States and China are currently pulling the oil market in opposite directions, leaving prices stuck in a narrow range. If fears of a hard landing for the US economy are alleviated, oil prices could break above the $80-$85 range and hit $90 per barrel. According to some of the world’s biggest physical traders of oil, oil prices could hit the $90-$100 per barrel range in the second half of this year as global demand is set to reach record levels while supply remains constrained.
Regarding Fed and interest rates
The February jobs report showed that 311,000 new jobs were added, which was a slower growth rate than the previous month but exceeded expectations. However, the unemployment rate rose and wage growth was weaker than anticipated. Although there are nearly two job openings for every unemployed worker, the average yearly wage increase has moderated from 5.9% to 4.6% since March 2022. Inflation has fallen from 9.1% in June 2022 to 6.4% in January 2023, but non-housing-related services such as healthcare and education continue to drive inflation. The Fed plans to raise interest rates to discourage employers from hiring and discourage consumers and businesses from borrowing, but this may further slow wage growth, which is already decreasing due to lower inflation expectations, supply chain improvements, and a lower number of people switching jobs. Some economists worry that the Fed’s aggressive rate hikes will increase the risk of a recession in 2023.
Regarding job report:
While the recent US job report has managed to impress the observers once again but it presents a mixed bag for workers. The number of jobs created was healthy at 311,000, wage growth was only average, and unemployment increased. However, if we look beyond these headline numbers and focus on the indicators of worker power, such as the rate of voluntary job-leavers or quits things do not seem good. Workers are not feeling confident enough to leave their current jobs for better opportunities.
The Department of Labor numbers earlier this week showed that quits fell from 3.9 million in January 2023 from over from over 4.1 million in December, with a difference in worker quitting behavior by industry. Quits fell in professional and business services, education, and in the federal government by much more than average, which could be due to recent layoffs at companies like Google, Meta, Twitter, and GM, making professional workers cautious.
Productivity report shows that claims of “quiet quitting” are unfounded. The rise in productivity and the decline in real hourly compensation (adjusted for inflation) suggest that workers are not sticking it to their employers and leaving without leaving. However, wage growth adjusted for inflation is the lowest in over 60 years and that can put further pressure on wage increase.