Saudi crude oil production plummeted to a 36-year low! Oil prices have broken 100, and pressure to raise global inflation and interest rates have resumed

The Zhitong Finance App learned that due to the intensification of the US-Iran conflict and the blockage of export channels in the Persian Gulf, Saudi Arabia, the leader of the Organization of Petroleum Exporting Countries (OPEC, OPEC), recently confirmed to OPEC that its crude oil production in August was drastically cut by 1.9 million barrels per day to 6.238 million barrels per day. According to OPEC's monthly report, this production level has fallen below the wartime low in April this year, setting a record low since the outbreak of the Gulf War in 1990.

Although Saudi Arabia narrowly maintained the “market supply” of 7.122 million barrels per day in August through the use of inventories, a serious gap on the supply side is unavoidable. As the world's core “industrial lifeblood,” the blockage of crude oil exports quickly triggered a sharp chain reaction in the global economic chain, from a sharp rise in commodities to rising production costs, to monetary policy tightening.

Crude oil breaks 100 and production-side inflation reignites

As the safety of the Persian Gulf waterways deteriorated and oil tankers were attacked frequently, international crude oil supply instantly contracted. This week, Brent crude oil futures broke through the $100 per barrel mark in one fell swoop. The sharp rise in oil prices was transmitted almost immediately to the production process. The newly released US Producer Price Index (PPI) showed a rebound that exceeded expectations, clearly showing that factories and enterprises are under sharp cost pressure on the energy, logistics, and chemical raw materials side. It also indicates that consumer inflation will face a stronger risk of a second rebound.

Europe took the lead in raising interest rates, and the US and Japan ushered in “Central Bank Super Week”

Faced with severe imported inflation brought about by oil prices breaking 100, the world's major central banks have had to regain their austerity lines. The European Central Bank (ECB) announced interest rate hikes tonight. Although this may put an additional burden on the already weak Eurozone economy, central bank management clearly put anchoring inflation expectations first.

The ECB's move officially kicked off the tightening of global monetary policy, and the market's eyes turned to the upcoming “Central Bank Super Week.” The Federal Reserve and the Bank of Japan will announce the latest interest rate decisions one after another next week. Currently, the Federal Reserve is being hampered by the “re-rise in inflation” and “economic slowdown” caused by high oil prices. Its policy statement will directly shake the pricing logic of US stocks and global risk assets; while Japan, which is extremely dependent on energy imports, is suffering from the widening trade deficit caused by high oil prices and the depreciation of the yen. Whether the Bank of Japan will follow up with interest rate hikes will become a major uncertain factor triggering the restructuring of global arbitrage funds.

Internal Discord and Poor Macro Outlook

While the supply side has been hit hard, the stability of the OPEC organization itself is also facing serious challenges. Earlier, the UAE announced its withdrawal due to dissatisfaction with quota restrictions; later, Venezuela assessed its stay after the US Commission reached an oil control agreement. Coupled with Iraq's dissatisfaction with production assessments, OPEC's role as a global crude oil “stabilizer” is being significantly weakened.

From the blockade of waterways in the Persian Gulf to the skyrocketing cost bills of US and European companies, to the interest rate hike agenda of the three central banks, a macro-transmission chain triggered by the geographical conflict has been completely penetrated. Against the backdrop of a situation in the US and Iran where it is difficult to see any light in the short term, the double squeeze of high oil prices and high interest rates is causing the global economy to enter a high-risk period of turbulence.