As coindesk.com notes, the price per barrel of West Texas Intermediate (WTI), the light, low-sulfur crude from Texas fields that serves as a benchmark for energy prices in North America, rose 12% to $64.30 this month. That’s the highest price since September. Its European and international benchmark, Brent crude, also rose to $68.22.
That’s bad news for bitcoin’s growth advocates, who are counting on stable inflation and lower interest rates in the U.S. and elsewhere in the world to restart the rally.
Recall that bitcoin peaked above $126,000 in early October before falling below $90,000. Today, January 29, the quotes are at $87993.55.
Oil is a key component of everyday goods and services, so its rising prices drive up costs in all areas. Higher oil prices increase the cost of gasoline, raising transportation costs for everything, including the delivery of food, clothing, electronics and more. These costs are then passed on to the end consumer, raising the overall price level in the economy.
This, in turn, leads to workers demanding wage increases to offset the rising inflation, creating a self-sustaining cycle where wages rise and companies raise prices even more.
“We find that the impact of oil prices on inflation is both economically and statistically significant, and occurs both directly and through secondary effects,” the U.S. Federal Reserve said in an explanation. – Higher energy prices can also raise consumer and business expectations of future inflation by indirectly raising the price of food and basic commodities already.”
Central banks typically respond to rising inflation by raising borrowing costs, making credit and money more expensive across the board, as the Fed did in 2022 when it quickly raised interest rates to curb inflation. Bitcoin fell 64% that year, with the Fed’s so-called tightening of monetary policy playing a major role in destabilizing the asset.
The latest rise in oil prices comes amid fresh Fed concerns about inflation. On Wednesday, the U.S. central bank kept interest rates unchanged in a target range of 4.5% to 4.75% and said inflation remains “somewhat elevated” because of tariffs – taxes on goods imported from abroad – imposed by President Donald Trump.
The accompanying statement and press conference indicate that the Fed “strengthened its confidence that the monetary policy easing cycle is nearing completion.”
In other words, the Fed sees no need to rush to cut rates, and rising oil prices may strengthen its stance against rapid liquidity easing.
Concerns about a possible Trump strike on Iran, a major oil producer, as well as declining U.S. oil inventories are pushing oil prices up.
In a post on Truth Social on Wednesday, Trump said a huge armada is headed toward Iran and mentioned Venezuela, which the U.S. military attacked earlier this month. He urged Iran to strike a nuclear weapons deal or face a “much worse” U.S. attack.
Iran responded to Trump’s threat by promising to “respond like never before.” While emphasizing the human and economic costs of a potential U.S. adventure.
Meanwhile, data from the U.S. Energy Information Administration (EIA) released on Wednesday showed U.S. oil inventories fell by 2.3 million barrels in the week ended January 24.
A decline in oil inventories usually indicates that demand is outstripping supply and refiners are using more inventory to meet needs.
