OPINION
Market Rating Before FOMC MeetingJan 31
Market Watch: Energy Prices
Energy crisis, which affected Europe at first, also spread to China, the United States and India, bringing huge concerns.
The restrictive measures as a result of the Covid-19 had subdued the demand in the energy group. Due to the decrease in energy consumption, pricing had eased. Deepening their losses at record levels, OPEC and non-OPEC countries tried to support prices by imposing a supply cut. Subsequently, the reopening of the economies along with the removal of the measures taken against the pandemic accelerated this recovery process.
The restrictive measures as a result of the Covid-19 had subdued the demand in the energy group. Due to the decrease in energy consumption, pricing had eased. Deepening their losses at record levels, OPEC and non-OPEC countries tried to support prices by imposing a supply cut. Subsequently, the reopening of the economies along with the removal of the measures taken against the pandemic accelerated this recovery process.
Reasons of Energy Crisis
In the pandemic period, consumers' staying at home negatively affected the growth of economies. In order to prevent this situation from expanding in the long term, the United States, which primarily directs the markets, announced a package of financial support at record levels, while the Federal Reserve provided support to the economy with near-zero interest rates and asset purchases worth $ 120 billion under the ultra-loose monetary policy.
In addition to the Fed, developed and emerging economies such as the European Central Bank (ECB) and the Bank of England (BoE) also provided this necessary support, and the recovery of economies gained momentum globally. Despite the rapidly increasing energy demand with this recovery, supply could not meet demand due to problems in supply chains, drought caused by global climate change, and speculative movements led to a rise in energy group prices to record levels.
In this context, Brent oil has climbed to the highest level of the last 3 years, crude oil climbed to the peak of the last 7 years and natural gas also climbed to the all-time peak.
Factories in China Halted Production
Factories stopped production after the rise in the energy group, which became a global problem, started to affect China. On the other hand, the vast majority of cities in the north of China had to deal with power shortages. Strategists publicly shared what they believe the crisis is caused by the Beijing administration's focus on climate change goals and goals to reduce carbon emissions.
While the markets are debating whether the rise in energy prices is permanent, the natural gas prices in Europe increased by 400 percent compared to the prices at the beginning of the year. In addition, electricity prices increased by more than 250 percent, while natural gas prices rose by more than 100 percent in the United States.
In the shadow of all these developments, the authorities of developed and developing central banks, which have recently increased inflation rates globally, consider the spike as a temporary one. Yet it can be said that the recent rise in energy prices may support inflation rates. On the other hand, the recovery of the industrial sector may lose some momentum due to the increase in energy prices.
