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Oil Prices Soar Again, Triggering Stagflation Risks

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Oil prices rose sharply again, triggering stagflation risks.Oil prices rose sharply to nearly $120 per barrel before easing back to around $114 on Thursday as the Russia-Ukraine conflict has triggered supply concerns and inflation worries, which is likely to hurt economic growth.Brent crude oil prices rose more than 5 per cent to within a whisker of $120 per barrel and are now up nearly 20 per cent on the week while triggering a rush into other commodities as Russian isolation intensifies in response to its invasion of Ukraine. It traded around $95 on the day Russia sent its troops into Ukraine."Crude trades higher amid tightness concerns on the back of Russia-Ukraine fight, OPEC+ decision to raise output gradually and unexpected decline in US crude stocks.

Crude may continue to trade higher unless there are genuine efforts to resolve Russia-Ukraine tensions," said Ravindra Rao, Head of Commodity Research at Kotak Securities.Fitch has slashed Russia's sovereign credit rating six notches to "junk" status, saying it was uncertain the country could service its debt, and Moody's soon followed.For well over a year, price pressures have been rising, with major central banks passing that off as transitory.

But this year, major central banks have acknowledged the risk of runaway inflation, if not controlled and are set to tighten policy, with a few having done so already.The surge in oil on supply concerns will add to worries about higher inflation and, in turn, economic growth risks."Russia supplies around 30% of Europe's gas and oil imports and accounts for around 11% of world oil production," Shane Oliver, Head of Investment Strategy at fund manager AMP, told Reuters.

"In short, investors are worried about a stagflationary shock."




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