Concerns That Energy Shortage Will Derail Global Economic Recovery

Petroleum futures are pulling back this morning, after setting fresh 7 year highs overnight. Concerns that the energy shortage in parts of the world is going to derail the global economic recovery are taking blame for a wave of “risk off” selling this morning that’s hitting both energy and equity markets. While the correlation between US energy and equity markets has been close to zero during the past few weeks, there is a clear tick higher in volatility in both asset classes which is as good a gauge as any other for the fear that’s creeping into the marketplace after an extended period of calm.

For anyone that remembers the “staycation” effect when gasoline prices surged north of $4 in 2008, and what happened to the economy over the following year, it’s easy to understand why the cost of natural gas in Europe quadrupling over the past 3 months, or coal prices reaching record highs in Asia, is a bit concerning.   

The API reported inventory builds across the board Tuesday afternoon, which threw a bit of cold water on the runaway rally, although given that fresh highs were set overnight after the report, the market seems to not care too much about US stockpiles when Europe and Asia are struggling to make ends meet. The fact that domestic inventories are able to build even as substantial oil production and refining capacity remains offline following Hurricane Ida, proves once again the resilience of the US supply network, which is going to be leaned on perhaps more than ever to help alleviate the shortages elsewhere in the world.  

Speaking of which, an EIA report Tuesday detailed how a change in China’s tax policy has reduced imports of some petroleum products, and exports of others, which may be adding to the supply bottlenecks being felt in many markets.  The EIA’s weekly status report is due out at its normal time this morning, and following that report the agency will release its International Energy Outlook for the year.  A sneak peek at that report released this morning forecasts that despite the rapid increase of net-zero carbon pledges, and steady growth in renewables, petroleum liquids are expected to remain the primary source of global energy for the next 30 years. 

The Financial Times has an ongoing series on electric vehicles, and this Tuesday’s update on “how green is your Electric Car” gives one of the most concise, objective looks yet on the pros and cons of EVs– with the best visuals you’ve likely ever seen on this topic. 

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