Goodbye to 2021’s loose money and hello to 2022’s inflation fighting: Year in Review

Special Goodbye to 2021’s loose money and hello to 2022’s inflation fighting: Year in Review
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Updated 01 January 2022

Goodbye to 2021’s loose money and hello to 2022’s inflation fighting: Year in Review

Goodbye to 2021’s loose money and hello to 2022’s inflation fighting: Year in Review

LONDON: From the great lockdown, to the great rebound? At the start of this year the world was optimistic that the development of pioneering vaccines would restrict the global spread of COVID-19. December 2020 marked the date when vaccinations for the virus first began to be administered around the world. Since then, the death toll has tripled according to the World Health Organization.
While the vaccine was never going to end the pandemic, the hope was that it would contain its spread, and that global trade and finance could resume unhindered.

Vaccine inspires confidence
However, as vaccine inspired confidence returned during 2021, a surge in demand exacerbated pre-pandemic supply chain disruption. Inflationary pressures in the logistics chain were led by global energy prices. The price of a barrel of Brent crude oil started 2021 at $50 and hit $85 by October.

Energy crisis

More significant was the sharp spike in natural gas prices that month. Europe’s TTF, the benchmark for wholesale gas, hit a record €137 per megawatt hour in October, an increase of more than 75 percent. In Asia, LNG prices soared above the equivalent of more than $320 a barrel of oil.

The gas price rise, particularly in terms of Europe, was exacerbated by a drop in exports from Russia’s Gazprom, partially caused by regulatory problems with its Nord Stream 2 gas pipeline, which is set to double gas supplies to Germany but circumvents Ukraine. Against the backdrop of current geopolitical events between Russian President Vladimir Putin and the West, another gas price spike looks likely to occur in the first quarter of the new year.

Supply chain crunch
Meanwhile, the supply chain crunch brought the system of outsourcing production across the globe and just in time delivery into sharp focus. In March the container vessel Ever Given became the most famous ship since the Titanic when it got stuck in the Suez Canal for six days.
Lloyd’s List estimated the Ever Given held up an estimated $9.6 billion of trade for each day it was stuck. Estimates suggest the stricken vessel knocked up to 0.4 percentage points off global trade growth.

Global inflation
While the sharp rise in global inflation was initially dismissed as transitory and attributed to a temporary mismatch in demand and supply as economies opened up again, price pressures now appear to be more entrenched and will be the unwanted gift from 2021 to 2022.
The other big issue for the world’s economies, particularly gulf oil producers, during 2021 was climate change.

COP26
In August, a UN report warned in stark terms that the world’s governments needed to do more to combat climate change and reduce greenhouse emissions.
Even the International Energy Agency warned investors to stop funding new oil and gas projects to ensure the world reaches net-zero emissions by 2050.
The US and China top the global emissions charts.
However, while US President Joe Biden brought America back into the Paris Climate Agreement, and China agreed to stop financing coal-fired power plants overseas, carbon emissions increased in 2021 as economies bounced back from the first phase of the pandemic.
At November’s critical COP26 UN Climate Conference in Glasgow countries pledged to take steps to address climate change, but intentions fell way short of implementation.
While President Biden warned COP26 of the need to end fossil fuels he also asked OPEC to pump more oil as American gasoline prices jumped to record levels, pushing US wider inflation to 40-year highs. Meanwhile, China ratcheted up its domestic coal production.
COP26 ended with a rather weak pledge to “phase down” coal power and end “inefficient” fossil fuel subsidies.

The SPR effect

Just a few days later, Biden authorized the release of 50 million barrels of oil from the US strategic reserve to his domestic market and vowed to release more to curb energy prices.
Instead of bringing prices down, the release pushed crude higher in the short term.
In short, while support for the 1.5C limit received fresh political backing in 2021, it looks like it will remain out of reach in 2022.
However, climate change continued to impact oil and gas, as environmental, social, and governance issues and other pressures came to bear on the industry, sending investment down by more than a third globally. A report released this week by Rystad Energy also revealed global oil and gas discoveries are on track to hit their lowest full-year level in 75 years if the final weeks of 2021 fail to yield any significant finds.

Capital markets
Another highlight of the global economy this year has been the overall strength of the capital markets despite the pandemic.
In November, in the US, both the Standard and Poor’s 500 and Dow Jones Industrial Average hit all-time highs, as did the tech-heavy NASDAQ. Rising oil prices and mining stocks have also pushed the blue chip FSTE 100 higher this year. The sharp rise in oil prices also boosted Saudi Arabia’s Tadawul All Share Index, which rose more than a third this year. The Kingdom’s strong showing also boosted the wider MSCI GCC Countries Index. The index, which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates, increased by a similar amount over the year.
Strong equity markets were key to global mergers and acquisitions, which hit a record high in 2021, topping $5 trillion for the first time ever. M&A volumes soared 63 percent to $5.6 trillion by 16 December, according to a report by Dealogic, way above the pre-credit crunch crisis record of $4.4 trillion in 2007.
The increase was driven partly by pent-up demand from last year when the pace of M&A activity fell to a three-year low.

Crypto market
And 2021 was also the year the crypto market came of age. After a roller-coaster year, the total value of cryptocurrencies rose to $3 trillion last month, led by Bitcoin.
Looking forward to 2022, pandemic fueled easy money policy, the salient feature of the global economic support in 2021, is finally set to end in 2022.
The economic outlook is now dominated by the impact of inflationary pressures and increasingly tighter monetary policy as well as uncertainty around omicron, all of which could set back economic recoveries worldwide.
Central banks, most notably the Federal Reserve and the Bank of England have signalled persistent elevated inflationary pressures will lead to higher interest rates in the coming year. The Bank of England recently hiked its benchmark interest rate from 0.1 percent to 0.25 percent. The US Fed has indicated it is aiming for three rate hikes next year. The European Central Bank is also shifting to a tighter policy, albeit more gradually.

Inflation
US inflation is currently running at 6.8 percent, across the eurozone it is almost 5 percent. In Germany, Europe’s largest economy, it is 6 percent, and in the UK 5 percent.
Central banks are set to slash debt purchases next year by an estimated $2 trillion across the four big advanced economies. JPMorgan estimates central bank bond demand across the US, the UK, Japan, and the eurozone will fall by $2 trillion in 2022, following a $1.7 trillion reduction during 2020.
That retrenchment is necessary after an International Monetary Fund report released this month noted that 2020 saw the largest one-year debt surge since the Second World War, with the total rising to $226 trillion. Borrowing by governments accounted for more than half of that figure. 

The IMF report reveals global debt increased 28 percent to 256 percent of world output.
The starker figure though, against the backdrop of tighter monetary policy, is the increase in private debt, which accounts for 178 percent of global gross domestic product. As interest rates climb, global debt defaults could increase next year, particularly as both the rise of the omicron COVID-19 variant, as well as the Delta variant identified last summer, have already seen governments across the world impose fresh restrictions on economic activity.
Against that backdrop, the odds on another lockdown and delayed rebound are getting shorter by the day.
Berenberg chief economist Holger Schmieding now expects a 1 percent quarterly drop in eurozone and UK GDP in the first quarter of 2022, downwardly revising earlier growth predictions.
Suddenly, this year’s bullish growth projections of a global recovery made by the IMF of 5.9 percent this year, and 4.9 percent in 2022, are starting to look very optimistic.


Saudi authorities taking steps to prevent artificial price hike, says minister

Saudi Minister of Commerce Majid Al-Qasabi. (Supplied)
Saudi Minister of Commerce Majid Al-Qasabi. (Supplied)
Updated 06 July 2022

Saudi authorities taking steps to prevent artificial price hike, says minister

Saudi Minister of Commerce Majid Al-Qasabi. (Supplied)
  • After 13 months — specifically March 2021 — there were growing signs of economic recovery, Al-Qasabi said, but warning that there was an increase in demand versus supply

JEDDAH: Major events including the COVID-19 pandemic and war in Ukraine have caused price hikes around the world, Saudi Minister of Commerce Majid Al-Qasabi said in a periodic government communication conference on Tuesday.

The press conference discussed four key areas: Global events that led to price increases, the Saudi leadership’s guidance to address the effects of the hikes, repercussions of global events on prices, as well as a question and answer segment.

“Let us rewind two years and a half back to February 2020. The COVID-19 pandemic was an economic, social and mental tsunami. It was the biggest economic crisis in the world,” Al-Qasabi said.

“This pandemic affected the whole world all at once, and suddenly without any warning. We are still suffering from its effects,” he added.

“We stayed in the pandemic for 13 months, and after that, it was the beginning of recovery.”

After 13 months — specifically March 2021 — there were growing signs of economic recovery, Al-Qasabi said, but warning that there was an increase in demand versus supply.

“The demand was more than the supply, and this causes an imbalance in the market, when the demand exceeds the supply. Of course, the result will be that prices have risen,” he added.

Al-Qasabi pointed to the Suez Canal obstruction in March 2021 as another event that added to global economic woes.

“We saw the blockage of the navigational movement and the cessation of the navigational movement in the Suez Canal, then after three months — in July 2021 — the second variant of the virus appeared and imposed a curfew again, which caused the closure of some ports and some cities,” he said.

In February 2022, the Russia-Ukraine conflict began. The minister said that the war affected transportation, too.

“We had a crisis between Russia and Ukraine, and we still do not know how long this crisis will last. These events combined, overlapped and completed, leading to a crisis in transportation and supply chains,” he said.

The transportation and supply chain crisis includes the disruption of some transportation ports, such as the main port of Shanghai, a sixfold increase in the cost of transportation, as well as surging freight insurance rates.

Al-Qasabi hailed King Salman’s royal order on Monday that approved the allocation of SR20 billion ($5.32 billion) to help citizens mitigate the impacts of rising global prices.

Half of the allocated money will go to social insurance beneficiaries and the Citizen Account Program.


NRG Matters: QatarEnergy signs deal with Shell for $30bn North Field East project; Germany’s renewable energy consumption up

NRG Matters: QatarEnergy signs deal with Shell for $30bn North Field East project; Germany’s renewable energy consumption up
Updated 05 July 2022

NRG Matters: QatarEnergy signs deal with Shell for $30bn North Field East project; Germany’s renewable energy consumption up

NRG Matters: QatarEnergy signs deal with Shell for $30bn North Field East project; Germany’s renewable energy consumption up

RIYADH: On a macro level, the Dubai Supreme Council of Energy has discussed measures for monitoring petroleum product trading in the emirate. Zooming in, QatarEnergy has signed a deal with Shell for the Gulf state’s $30 billion North Field East expansion. 

Looking at the bigger picture

  •  Dubai Supreme Council of Energy has discussed measures for monitoring petroleum product trading in the emirate, according to WAM.
  • Renewable energy accounted for 49 percent of the total German power consumption in the first half of 2022, up 6 percent from a year earlier, Reuters reported. 

Industry groups have attributed this increase to favorable weather conditions. 

Through a micro lens:

  • QatarEnergy has signed a deal with Shell for the Gulf state’s North Field East expansion, the first phase of the world's largest liquefied natural gas project, according to Reuters.

This happens as the country partners with international companies in the first and largest phase of the nearly $30 billion expansion that will boost Qatar’s position as the world’s top LNG exporter.

  • Siemens Gamesa and Germany’s renewables developer wpd have signed a supply agreement for  a 927-megawatt Gennaker offshore wind power plant, according to Trade Arabia.

Located 15 kilometers off the German coast, the project will feature 103 Siemens Gamesa Direct Drive offshore wind turbines each with a 167-meter rotor.


Gas consumption set to contract due to Russia: IEA

Gas consumption set to contract due to Russia: IEA
Updated 05 July 2022

Gas consumption set to contract due to Russia: IEA

Gas consumption set to contract due to Russia: IEA

Gas consumption will contract slightly this year due to high prices and Russian cuts to Europe, with only slow growth over coming years as consumers switch to alternatives, the International Energy Agency said on Tuesday.

The IEA chopped its forecast for global gas demand by more than half in its latest quarterly report on gas markets.

It now expects growth of just 3.4 percent by 2025, an increase of 140 billion cubic meters from 2021 levels, which is less than the 175 bcm jump in demand registered in 2021 alone.

“The consequences of Russia’s invasion of Ukraine on global gas prices and supply tensions, as well as its repercussions on the longer-term economic outlook, are reshaping the outlook for natural gas,” said the IEA.

HIGHLIGHTS

The IEA chopped its forecast for global gas demand by more than half in its latest quarterly report on gas markets.

It now expects growth of just 3.4 percent by 2025, an increase of 140 billion cubic meters from 2021 levels, which is less than the 175 bcm jump in demand registered in 2021 alone.

“Today’s record prices and supply disruptions are damaging the reputation of natural gas as a reliable and affordable energy source, casting uncertainty on its prospects, particularly in developing countries where it had been expected to play a growing role in meeting rising energy demand and energy transition goals,” it added.

While Russia has cut supplies to Europe and European nations have pledged to wean themselves off Russian gas, the impact quickly rippled throughout the world.

European nations are trying to make up the shortfall by importing more liquefied natural gas shipped by tanker, which the IEA said is creating supply tensions and leading to demand destruction in other markets.

It warned that the scramble for LNG risked not only causing economic harm to other more price sensitive importers, but pushing up prices and thus contributing to additional revenues for Russia.

“In this context, an accelerated phase-out of Russian gas should primarily focus on reducing gas demand and scaling up domestically produced low-carbon gase” such as biogas, biomethane, and green hydrogen, said the IEA.

The IEA, which advises energy importing nations on policy, said in its new forecast for lower gas demand growth that only a fifth of the reduction came from expected efficiency gains and substituting renewables for gas.

“Our forecast’s lower gas demand growth compared to last year does not guarantee an accelerated transition to net-zero emissions, as the bulk of the revision comes from lower gross domestic product and fuel switching rather than by faster gas-to-electricity conversion and efficiency gains,” said the report.

The IEA said additional green energy transition measures would, in additional to their long-term impact in reducing emissions, ease pressure on gas prices globally by reducing supply tensions while also delivering short-term improvements in air quality by quickening the move away from coal.

“The most sustainable response to today’s global energy crisis is stronger efforts and policies to use energy more efficiently and to accelerate clean energy transitions,” Keisuke Sadamori, IEA director for energy markets and security, said in a statement.


Oil slumps $10 per barrel as recession fears darken demand outlook

Oil slumps $10 per barrel as recession fears darken demand outlook
Updated 05 July 2022

Oil slumps $10 per barrel as recession fears darken demand outlook

Oil slumps $10 per barrel as recession fears darken demand outlook

NEW YORK: Oil plummeted by about $10 a barrel on Tuesday on concerns of a looming global recession curtailing demand, even with expected supply disruptions as oil and gas workers in Norway began to strike.

Global benchmark Brent crude was down $10.77, or 9.5 percent, at $102.73 a barrel by 11:43 a.m. EDT (1543 GMT). US West Texas Intermediate crude fell $9.30, or 8.6 percent, to $99.13 a barrel from Friday’s close. There was no WTI settlement on Monday because of a US holiday.

“The market is getting tight, but still we're getting creamed and the only way you can explain that away is fear of recession in every risk asset,” said Robert Yawger, director, energy futures at Mizuho, New York. “You’re feeling the pressure.”

Oil futures sank along with equities, which often serve as demand indicator for crude, as investors fretted about the possibility of an economic downturn as central banks across the world take aggressive actions to limit inflation.

Supply concerns still linger, initially lifting WTI and Brent earlier in the session, due to potential output disruption in Norway, where offshore workers began a strike.

The strike is expected to reduce oil and gas output by 89,000 barrels per day, of which gas output makes up 27,500 bpd, Norwegian producer Equinor has said.

Saudi Arabia, the world’s top oil exporter, raised August crude oil prices for Asian buyers to near record levels amid tight supply and robust demand.

Meanwhile, Russia’s former President Dmitry Medvedev said a reported proposal from Japan to cap the price of Russian oil at about half its current level would mean less oil on the market and could push prices above $300-$400 a barrel.

G7 leaders agreed last week to explore the feasibility of introducing temporary import price caps on Russian fossil fuels, including oil, in an attempt to limit resources to finance Moscow’s “special military operation” in Ukraine.


Oil sector under siege due to underinvestment, says OPEC secretary-general

Oil sector under siege due to underinvestment, says OPEC secretary-general
Updated 06 July 2022

Oil sector under siege due to underinvestment, says OPEC secretary-general

Oil sector under siege due to underinvestment, says OPEC secretary-general

ABUJA: The oil and gas industry is facing huge challenges on multiple fronts and is “under siege” due to years of underinvestment globally that has led to market tightness, Mohammad Barkindo, the OPEC secretary-general,  said on Tuesday.

“Our industry is now facing huge challenges along multiple fronts,” he told delegates at an energy conference in Nigeria’s capital.

“And these threaten our investment potential now and in the long term, to put it bluntly, my dear friends, the oil and gas industry is under siege,” he said, citing geopolitical developments in Europe.

The fallout from the war in Ukraine has left many countries globally vulnerable to soaring energy prices. 

He said the supply shortage could be eased if extra supplies from Iran and Venezuela were allowed to flow.

Years of sanctions have limited supplies from Iran and Venezuela.

In addition, the West has imposed sanctions on Russia, a member of OPEC+ that groups the Organization of the Petroleum Exporting Countries and allies, following Moscow’s invasion of Ukraine on Feb. 24, tightening oil markets further.

“We could, however, unlock resources and strengthen capacity if the oil produced by the Islamic Republic of Iran and Venezuela were allowed to return to the market,” Barkindo said.

Strain on the industry has been increased by some countries' efforts to divest from hydrocarbons, he said.

While they are seeking to limit global warming, he said oil demand was growing even as investment in capacity falls and prices surge.

Nigeria’s Oil Minister Timipre Sylva said Africa’s top oil producer would not abandon fossil fuels.

“For us in Nigeria, fossil fuel will always have a share in our energy mix, for the foreseeable future. We will not at this time abandon fossil fuels. We have adopted ... gas as a transition fuel,” he said.