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Could An Oil Boom Bust The Economy?

Sharply higher oil prices have the potential to re-ignite inflation.

Last week saw oil prices hitting their highest point in 10 months following news that Russia and Saudi Arabia will extend their oil production cuts through December. This week, Brent crude hit $90 per barrel for the first time since last November (see the chart), while U.S. oil prices have jumped approximately 10% over the last two weeks.

Source: Bloomberg, as of 9/13/23

Since then, gas prices—already on the rise for much of the year—have surged in many areas of the country. In the Midwest, for example, pump prices are expected to spike by 50 cents or more per gallon. Nationwide, gas prices now stand at $3.82 per gallon—up more than 18% since the start of 2023.1

From an investment perspective, rising oil prices constitute a double-edged sword:

  • On the one hand, our portfolios’ overweight position in the energy sector has been favorable in the recent environment.
  • That said, investors are increasingly worried that rising oil prices (if sustained) could rekindle widespread inflation—and force the Fed to keep interest rates high or even raise them again.

The latest inflation report (CPI), released this week, showed that U.S. consumer prices jumped 0.6% in August—the most significant increase in 14 months—mainly due to higher oil prices. Overall, energy contributed 0.4% to August’s price increase.

There’s also the potential impact of high gas prices on overall consumer demand. Research2 shows consumer sentiment becomes more pessimistic with rising gas prices—and as consumers become less certain about their financial prospects, they tend to rein in their spending. Given consumers’ crucial role in keeping the current economy strong, we’ll be watching this factor closely in the coming months.



2Binder, Carola and Makridis, Christos, Stuck in the Seventies: Gas Prices and Consumer Sentiment (May 20, 2019).

This commentary is written by Horizon Investments’ asset management team. Past performance is not indicative of future results. Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances that may be relevant to any company, industry, or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice, or recommendation in this document, clients should consider whether the security in question is suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any
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