For bitcoin bulls, it feels like one setback after another. The first precious metals such as gold and silver rose to record highs, sucking capital away from the crypto market. And now oil is starting to rise as well, threatening to skew macroeconomic forces in favor of bitcoin bears.
The price per a barrel of West Texas Intermediate (WTI), a type of light, sweet crude from Texas fields that serves as a benchmark for North American energy pricing, has risen 12% to $64.30 this month. This is the highest price since September. Its European and international benchmark, Brent, has seen a similar rise to $68.22.
This is bad news for bitcoin bulls, who are counting on stable inflation and lower interest rates in the US and other parts of the world to restart the rally. Bitcoin peaked above $126,000 in early October and has since fallen below $90,000.
Oil breeds inflation
Oil is a key ingredient in everyday goods and services, so when the price goes up, it increases costs across the board. Higher oil makes gasoline more expensive, which increases transportation costs for everything, including food deliveries, clothing, electronics, and more. These costs are then passed on to the final consumer, raising the general price level in the economy.
This in turn leads to workers asking for higher wages to keep up with rising inflation, leading to a self-fulfilling cycle in which wages rise, after which companies raise prices even more.
“We find that the impact of the oil price on inflation is both economically and statistically significant, and that it occurs both directly and through second-round effects,” says the Federal Reserve’s explanation. “Higher energy prices may also raise consumer and business expectations of future inflation, indirectly raising food and core prices now.”
Central banks typically respond to rising inflation by raising borrowing costs, making credit and money more expensive across the board, just as the Fed did in 2022 when it quickly raised interest rates to tame inflation. Bitcoin fell 64% that year, with the so-called Fed tightening playing a major role in destabilizing the asset.
The latest rebound in oil prices comes as the Fed grapples with renewed inflation concerns. On Wednesday, the central bank kept interest rates unchanged in a target range of 4.5% to 4.75%, saying inflation remains “somewhat elevated” due to President Donald Trump’s tariffs – taxes on goods imported from abroad.
According to ING, the accompanying statement and press conference suggested that the Fed is “more confident that the policy easing cycle is close to a conclusion.”
In other words, the Fed sees no rush to cut interest rates, and rising oil could strengthen its stance against rapid liquidity easing.
Why is oil rising?
Fears that Trump will hit Iran, a major oil producer, plus falling US inventories are pushing up oil prices.
In a Truth Social post on Wednesday, Trump said a massive Armada was headed for Iran, referring to Venezuela, which the US military raided earlier this month. He called on Iran to reach a nuclear weapons deal or face a “far worse” US attack.
Iran retaliated against Trump’s threat by vowing to “react like never before” while highlighting the human and economic costs of a potential American adventure.
At the same time, data from the US Energy Information Administration (EIA) released on Wednesday showed that oil inventories in the US fell by 2.3 million barrels during the week ending January 24.
Falling oil inventories typically signal stronger demand outstripping supply, with refiners drawing more from inventories to meet needs.
