With geopolitical tensions rising, the price of Brent Crude could top $100 a barrel for the first time since Russia’s invasion of Ukraine in 2022 suggests former White House advisor Bob McNally in an interview with Bloomberg.

Brent Crude has rallied more than a quarter since December 2023 and almost touched $92 per barrel last Friday (5 April) raising fears of a commodity-led rebound in inflation.

The timing of this spike in prices could not be much worse for the US Fed following a much stronger than expected March jobs report (5 April) which saw the economy add 303,000 new jobs and unemployment fall back to 3.8%.

US 10-year bonds touched a new high for the year following the payroll data while market-derived odds of a July rate cut fell back towards 50%.

The strength in oil prices is more than just geopolitics. The underlying cause of oil’s renaissance has been a combination of supply-side shocks and Mexico’s recent move to cut crude exports to the US by a third.

That matters these days because the US has become the world’s largest oil producer. More barrels consumed domestically means fewer barrels available for the world market.

In total the US, Mexico, Qatar and Iraq have cut production by around one million barrels per day over the last month according to data tracked by Bloomberg.

On top of that, the UAE (United Arab Emirates) has seen the state oil company divert more supplies to its own refinery curbing shipments by as much as 41% compared with the average of 2023 say traders.

With Europe still engaged in rerouting tankers around Africa due to rebel attacks, which is delaying deliveries, the pinch in global oil supplies is having a real impact on prices at the margin.

The US EIA (Energy Information Administration) in now predicting global inventories will fall by around 900,000 barrels per day in the current quarter, which is a big downward revision to its previous forecast of unchanged inventories.

The shortfall, which is equivalent to the production from Oman, means stockpiles are forecast to decline for the first time since 2021. Meanwhile, US refiners are preparing to boost production ahead of the peak driving season with millions hitting the roads leading to a peak in gasoline consumption.

Higher gas prices at the pump will do Joe Biden few favours with voters ahead of November’s election, while for Fed chair Jay Powell higher oil prices muddy the inflation backdrop.

Higher input costs are not helpful when the manufacturing sector is back in expansion territory as shown by the latest ISM data.

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