Rising Crude Prices Could Add Further Hawkishness to Rate Cuts

While recent economic data points to a stronger US economy, and lower necessity for interest rate cuts, rising crude prices are likely to be an additional headache for the Fed.

• Brent crude prices have exceeded $90/b for the first time since October, with views for prices turning more bullish. With upward revisions for crude prices in 2024, this could bubble up into higher inflation as costs for manufactured goods, energy, and road fuels rise.
• Continued attacks on Russian refinery infrastructure have idled up to 15% of its refining capacity, which could impact supplies of products such as diesel once the current volumes on the water clear. The latest Bloomberg figures do however show its capacity recovering in early April.
• Moreover, a resumption in the escalation of tensions in the Middle East between Israel and Iran are raising concerns of a broader conflict which could then impact supply.
• The impact of oil prices will add to growing economic data pointing to a stronger US economy, with today’s non-farm payrolls far stronger than expected at 303k (cons 214k) in March along with a small net upward revision of 22k (-5k in Feb but +27k in Jan).
• Today’s data has pushed back expectations of the timing of the first rate cut.