Jump to content

The global energy crisis explained


MongiIG

744 views

The global energy crisis explained

In this article we break down the current global energy crisis and look at effects on commodity prices and inflation.

EnergySource: Bloomberg
 
 Shaun Murison | Senior Market Analyst, Johannesburg | Publication date: Friday 22 October 2021 

Global energy crisis explained

What is the global energy crisis?

The current energy crisis is a disruption in the availability and supply of energy resources to the large parts of the global economy, amidst increasing demand.

Which regions are being affected by the energy crisis?

Major economies such as the US, China, Europe and India are currently being affected by the global energy crisis.

Why are these regions being impacted?

There are varying reasons across jurisdictions which are contributing to the current crisis.

Some of these issues are as follows:

  • Energy demands globally have picked up as post-Covid-19 pandemic global economic recovery
  • A cold winter and hot summer as well as an economic growth has equated to electricity shortages in China
  • China now stockpiling domestic coal and gas reserves
  • Russia has limited gas supply to Western Europe
  • Low and diminishing coal inventory levels in India
  • Much of Europe mainly use gas for heating, Europe is moving into winter and inventories are low
  • Organisation of the Petroleum Exporting Countries (OPEC) oil production increase marginal not meeting expected future demand
  • Supply chain or logistic disruptions to supply of natural resources

How are energy prices reacting to the crisis?

Fossil fuels which include coal, natural gas and oil still account for the vast majority of global energy needs. As demand outstrips supply we are seeing an exponential rise in these commodity prices.

Year to date moves in these commodities as of 21 October is as follows:

 

How can the energy crisis affect inflation and the broader economy?

Higher energy costs feed into higher inflation across a broad basket of items directly and indirectly such as electricity, transportation, food etc.

In the US alone (the world’s largest economy) we are seeing consumer price index (CPI) data highlighting inflation currently sustaining above 5%, where the US Federal Reserve bank (Fed) targets price stability at around 2%. Higher inflation if not transitory will pressure the tightening of monetary policy i.e. interest rates. Rising interest rates while aimed at stabilizing price inflation, can slow economic growth and in turn negatively affect employment.

The below graph shows the monthly CPI inflation print since October 2020.

 

US CPISource: Tradingeconomics

How long will the energy crisis last?

It is uncertain as to how long the current energy crisis will persist. However, demand side assumptions for energy are higher in the colder months and the suggestion is that problems could in turn persist until at least the end of US and European winter this year.

Supply chain bottlenecks which not only affect commodity prices but a whole host of goods in general, are likely to persist into the new year and at least the first quarter (Q1) of 2022.

 

Brent crude technical analysis

 

Brent crudeSource: ProRealTime

 

Oil prices continue to grind higher in lieu of limited production increases amidst increasing demand and a global energy crunch underway.

Brent crude while remaining in overbought territory still trades firmly within a strong uptrend. We continue to look for short-term corrections in oil to find long entry, with 86.50 and now 89.00 our longer-term upside targets.

 

Natural Gas – technical analysis

 

Natural gasSource: ProRealTime

 

The long-term trend for Natural Gas remains up. In the short term, a correction of this uptrend looks to have ended with a bullish price reversal (circled blue). The bullish price reversal is supported by the oversold indication on the stochastic indicator.

These bullish indications in technical analysis terms favouring renewed gains with 6030 the initial upside resistance target. Traders who are long might consider using a close below the reversal low at 5000 as a stop loss indication for the trade.

Summary

  • A variety of factors including a post-Covid-19 pandemic economic recovery and supply chain disruptions are contributing to a global energy crisis at present
  • These has equated to soaring energy costs globally
  • Fossil fuels, which include oil, natural gas and coal account for the bulk of global energy demands and in turn prices have risen considerably
  • The energy crisis is expected to continue until at least the end of 2021
  • Rising energy costs are further fueling inflationary concerns
  • Higher inflation if sustained can weigh on global economic growth and employment through a more aggressive tightening of monetary policy

0 Comments


Recommended Comments

There are no comments to display.

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Blog Statistics

    • Total Blogs
      3
    • Total Entries
      1,935
  • Latest Forum Topics

  • Our picks

    • Swiss Franc Firming Against US Dollar and Euro. Will Momentum Take CHF Higher?
      EUR/CHF made a 7.5-year low at the end of last month at 0.9699, moving below the previous low of 0.9804.

      Since breaking lower, the price has not managed to reclaim 0.9804 and it may continue to offer resistance. The 21-day Simple Moving Averages (SMA)is currently at that level, potentially adding resistance.

      Further up, the recent peak of 0.9957 might offer resistance ahead of the break point at 0.9973.

      In the last session, the price has crossed below the 10-day SMA and remains below the 21-, 55-, 100- and 200-day SMAs.

      A bearish triple moving average (TMA) formation requires the price to be below the short term SMA, the latter to be below the medium term SMA and the medium term SMA to be below the long term SMA. All SMAs also need to have a negative gradient.

      Looking at EUR/CHF, the criteria for a bearish TMA has been met and may indicate that bearish momentum could evolve further.

      Support might be at the recent low of 0.9699 or further down at the 161.8% Fibonacci Extension of 0.9638.

       

      Chart created in TradingView 

      USD/CHF TECHNICAL ANALYSIS

      USD/CHF has bounced off low made at the start of this month at 0.9470 to trade in a wide range of 0.9545 – 0.9650. These levels might provide support and resistance respectively.

      While the price is below all short-, medium- and long-term Simple Moving Averages (SMA), they have positive and negative gradients. This may suggest a lack of conviction for directional momentum that might see further range trading.

      Re-iterating this possibility is the price criss-crossing the 10-day SMA. Recent history has shown that when the price crosses the 10-day SMA, momentum in that direction continues. That is not the case over the last week.

      The recent low of 0.9470 may provide support ahead of the break point at 0.9460. On the topside, resistance might be at the break point of 0.9710 or the July peak of 0.9886.

       Chart created in TradingView

      Daniel McCarthy, Strategist Daily FX

      Source: Daily FX
      • 0 replies
    • Post in FTSE 📈 to drop soon
      Check out phillo's analysis on the FTSE100. Are you tracking any technical analysis for the FTSE you want to share? If so join the forum.
        • Like
    • Rolls-Royce share price: half-year results
      Rolls-Royce shares (LON: RR) sunk by 10% to 83p on Friday after half-year results spooked investors over long-running problems with supply chain issues and inflation.
      • 0 replies
×
×
  • Create New...