Oil Prices Surge, Here’s How it May Affect Crypto

Paigambar Mohan Raj
Source: BeInCrypto

In anticipation of a decline in the supply of Russian crude, oil prices increased by $1 on Friday. Brent crude went up by 66 cents, or 0.8%, to $81.64 per barrel, while US West Texas Intermediate (WTI) crude went up 78 cents, or 1%, to $78.27 a barrel. With Brent up 3.3 percent and WTI up 5.4 percent, both are expected to rise for the second straight week. A change in oil prices indirectly impacts the stock and crypto markets, as we will see below.

Following G7 and EU sanctions and the implementation of a price restriction on December 5, shipments of Russian Baltic oil might decline by 20% in December. Moscow is rumored to be considering a 5-7% reduction in oil output starting at the beginning of 2023 in reaction to these price limitations.

Deputy Prime Minister Alexander Novak was quoted by the RIA news agency, suggesting that the nation would stop supplying oil to countries that backed these sanctions.

How is Crypto affected?

A surge in oil prices may lead to an increase in the cost of goods. This leads to decreased demand and hence a decrease in stock prices. Oil represents a vital portion of the monthly CPI (Consumer Price Index) data. Therefore a surge in oil prices could increase the CPI numbers. This will consequently lead to the Federal Reserve taking a hawkish stance on interest rates, thereby bringing down investments.

As of Wednesday, the stock and crypto markets began to diverge. Although the correlation between the two was strong earlier in the month, the crypto market fell under pressure. One possibility is that stock prices may decline, and investors may switch to cryptocurrency as a hedge. However, the crypto market’s wounds are still fresh. The industry is still coping with the FTX collapse and falling prices of assets. Therefore, many might be hesitant to invest money in the industry just now. Consequently, this may cause the correlation between stocks and cryptocurrencies to return.

On the other hand, if the core CPI (without oil prices) remains steady, the FED may take a milder approach. Although interest rates will continue to rise, the increment might be minimal in this scenario. This possibility will likely leave things as they presently are.

At press time, the global crypto market cap stood at $847 Billion, up by 0.2% in the last 24 hours.