For months, many economists have been warning about the dangers of structural inflation. With all the support that governments and central banks gave to overcome the dire consequences of the Covid-19 pandemic, it was pretty certain that we were going to see an upward pressure on prices. While inflationary pressure was originally considered as temporary, major central banks (including the US, European Central Bank and Bank of England) are now acknowledging that inflation is lingering much longer than originally expected and therefore should be tackled sooner rather than later.
Commenting on the three-digit oil price predictions by Wall Street banks for 2022 and 2023, Dr Nakhle says that similar predictions for the end of 2021 were made and failed to materialise. Although a three-digit oil price is always possible, it is expected to be short-lived as OPEC still holds a record spare capacity that could act as a safety cushion should such levels are reached.
While there is a diverging view between Central Bankers around the risk of Omicron, Dr Nakhle states that what could impact the energy markets are the government responses to limit the spread of the virus. However, the economic recovery is unlikely to go back to square one since governments are avoiding full lockdowns, as in the early stages of the pandemic, partly because of public resistance and partly because we are in a different world than where we were a year ago with the availability of vaccines and better treatment.
Dr Nakhle concludes that 2022 is going to be an interesting year for oil markets. OPEC still sees demand strongly recovering and additional supplies are expected to come from both OPEC+ and non-OPEC+, primarily from the US, Norway, Guyana and Canada, among others. Gas markets will exhibit seasonal changes, so one should look at the weather, especially in the first quarter of 2022.
Watch the full discussion:
“European gas crunch: Calm before the storm?“, Dr Carole Nakhle, Dec 2021
“Global Economy and Energy Markets Weekly Commentary – 12th Dec ‘21“, Christof Rühl, Dec 2021