Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Gas price surge, just one more headwind for world economy

CommoditiesSep 21, 2021 02:31AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Snow covered transfer lines are seen at the Dominion Cove Point Liquefied Natural Gas (LNG) terminal in Lusby, Maryland March 18, 2014. REUTERS/Gary Cameron

By Dhara Ranasinghe

LONDON (Reuters) -Soaring gas prices that threaten to push up winter fuel bills, hurt consumption and exacerbate a near-term spike in inflation are another blow to a world economy just getting back on its feet after the coronavirus shock.

The gas market chaos, which has driven prices 280% higher in Europe this year and led to a 100%-plus surge in the United States, is being blamed on a range of factors from low storage levels to carbon prices to reduced Russian supplies.

So high are tensions that several European Parliament lawmakers have demanded an investigation into what they said could be market manipulation by Russia's Gazprom (MCX:GAZP).

Whatever the causes, the surge carries major market implications:

1/GROWTH

Analysts say it's too early to downgrade economic growth forecasts but a hit to economic activity looks inevitable.

Morgan Stanley (NYSE:MS) reckons the impact in the United States, the world's biggest economy, should be small. While over a third of U.S. energy consumption in 2020 was supplied by natural gas, users were predominantly industrial, it notes.

Overall though, higher gas prices raise the risk of stagflation - high inflation, low growth.

"It is quite clear there is a growing sense of unease about the economic outlook as a growing number of companies look ahead to the prospect of rising costs," said Michael Hewson, chief market analyst at CMC Markets.

2/INFLATION

Euro zone wholesale power prices are at record highs, potentially exacerbating inflation pressures inflicted by COVID-related supply bottlenecks. In Germany, 310,000 households face an 11.5% increase in gas bills, data showed on Monday.

Noting German factory gate prices were already the highest since 1974, Citi analysts predicted 5% hikes for electricity and gas prices in January, adding 0.25 percentage points to consumer inflation next year.

Higher food costs are another side effect, given a shortage of carbon dioxide which is used in slaughterhouses and to prolong the shelf-life of food. Cuts in fertiliser production could also lift food prices.

Goldman Sachs (NYSE:GS) predicts higher oil demand, with a $5 per barrel upside risk to its fourth-quarter 2021 Brent price forecast of $80 a barrel. Brent is trading at about $74 currently. [O/R]

3/CENTRAL BANKS

Central banks are sticking with the line that the spike in inflation is temporary -- European Central Bank board member Isabel Schnabel said on Monday she was happy with the broad-based rise in inflation.

But as market- and consumer-based measures of inflation expectations rise, gas prices will be on central banks' radar.

"If we have higher inflation, transitory or structural, and have slower growth - it will be a very tricky situation for markets and central banks to assess, navigate and communicate," said Piet Haines Christiansen, chief strategist at Danske Bank.

This week's central bank meetings could test policymakers' resolve. The Bank of England meeting on Thursday is in particular focus, given UK inflation has just hit a nine-year high.

With UK producer price inflation soaring, shipping costs showing little sign of cooling, commodity prices higher up and job vacancies tipping 1 million, there is a growing chance that higher prices will stick around for longer, said Susannah Streeter, senior analyst at Hargreaves Lansdown (LON:HRGV).

"If they do, more (BoE) members may move quickly to vote for a rate rise sooner than expected next year, but it would be an unpopular course of action with looming tax rises already hard to digest for many consumers," she said.

4/ STATE BAILOUTS

Britain is considering offering state-backed loans to energy firms after big suppliers requested support to cover the cost of taking on customers from companies that went bust under the impact of gas prices. One firm, Bulb, is reportedly seeking a bailout.

France meanwhile plans one-off 100 euro ($118) payments to millions of households to help with energy bills.

"The story emerging from the UK energy sector will soon be more relevant to the European market than Evergrande," said Althea Spinozzi, senior fixed income Strategist at Saxo Bank.

And in a week packed with central bank meetings, she added that markets were "right to fret."

5/COMPANIES

Spain shocked the utility sector last week by redirecting billions of euros in energy companies' profits to consumers and capping increases in gas prices. Revenue hits at Iberdrola (OTC:IBDRY) and Endesa were estimated by RBC at one billion euros and shares in the companies sold off heavily.

Since the move, investors have fretted about contagion to other countries, Morgan Stanley said. While seeing those fears as overdone, the bank acknowledged there was a risk of margin squeezes at European utilities in coming months.

Sector shares are down for the third week straight

Gas price surge, just one more headwind for world economy
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
Wayne Cammack
Wayne Cammack Sep 20, 2021 2:35PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
You cant have it both ways. Cut emissions and your own throat. Simply stupid.
Felipe Daniel
Felipe Daniel Sep 20, 2021 12:51PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thanks to Joe Biden sleepy Joe policies to limit American production
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email