Oil, natural gas, CO2 emission rights - these are all instruments that seem to be getting significantly more expensive in 2021. The price of a barrel of WTI has increased by 57 percent, and U.S. gas contracts by 140 percent, all of which could lead not only to cost inflation, but also to an energy crisis this winter.
Brent crude oil futures rose above $80 per barrel today, the highest level since October 2018. This came amid insufficient supply and recovering demand in many parts of the world.
In the UK, a shortage of truck drivers combined with panic buying of gasoline at stations has led to widespread fuel shortages in many parts of the country, which has begun to affect various sectors of the economy.
At the same time, U.S. oil rig activity in the Gulf of Mexico remains below pre-hurricane levels, and crude inventories according to the EIA shrank to a 3-year low last week at 414 million barrels. Meanwhile, Goldman Sachs raised its year-end forecast for Brent crude by $10 to $90 per barrel.
Dollar exchange rate stabilises
Despite the recent rise in US yields, the Dollar exchange rate appears fairly stable, with market participants continuing to scrutinise the Federal Reserve's more hawkish stance. Last week, the US central bank hinted that it may begin reducing asset purchases as early as November this year, while lowering growth forecasts and raising inflation expectations.
Investors may now be closely watching Fed Chairman Jerome Powell's testimony before the U.S. Senate and his participation in a European Central Bank forum panel. Yesterday, Powell indicated that inflation may not be purely transitory as originally anticipated.
Gold without major changes
The debt crisis of Evergrande, the Chinese real estate development giant, is not silent. China's power supply constraints are also not abating, which on balance could affect risk sentiment. Despite this, gold considered a safe haven does not appear to be changing its price in any significant way. On Tuesday, bullion ounce prices hovered around $1,751, little changed from the previous day. However, it continued their rebound from the 6-week low of $1741 reached last Thursday before speeches by several Fed policymakers.
This fall or winter, however, gold may yet return to investors' good graces if a negative scenario related to the energy sector translates into the functioning of many economies of the world. Perhaps the last quarter of this year could see stagflation, i.e. a combination of inflation and economic stagnation, which may contribute to renewed interest in the yellow metal.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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