The global energy crisis and inflation angst of 2021, in 10 charts
For weeks now, global markets have been in the grip of fears of an energy crisis that could derail the economic recovery from the coronavirus pandemic and fuel runaway inflation.
An unfortunate convergence of supply-chain bottlenecks, climate-related restrictions, unfavourable weather and political disputes has spawned unexpected energy deficits from China to Europe and the UK, sending fuel prices skyrocketing and undermining demand for riskier assets such as equities.
Read more: The global energy crisis: what is causing it and where are we headed?
Below are 10 charts that illustrate the many sides of the energy crunch – from some factors that fueled it, to how its shockwaves have spread across the world’s markets and economies.
1. Energy commodities have outperformed stocks this year
Energy commodities have been among the world's best-performing assets this year, substantially outperforming the stock market. Natural gas prices are up 123% year-to-date, while WTI crude oil prices have rallied by 58%. In comparison, the S&P 500 of US equities is up just 16%.
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Energy commodities outperform – Image: Koyfin2. Coal prices have hit record highs amidst China shortages
A shortage of of coal in the world's second-largest economy, partly due to Beijing's policies focusing on reducing reliance on fossil fuels in recent years, has sent coal prices to new all-time highs. The benchmark Newcastle coal futures front contract reached $240 per tonne this week, marking a 190% surge since the beginning of the year, easily surpassing the previous highs set in 2011.
Coal futures hit a record – Image: TradingView3. Europe's gas reserves have never been this low for this time of the year
Gas storage levels in Europe have never been as low as now before the start of a winter, currently covering only 75% of the working gas volume, compared with a past average of 90%-95% for this time of the year. A drop in renewable energy output due to a lack of wind in the North Sea and low water levels in Norway's reservoirs has prompted European countries to demand more gas, but they are struggling with supply-side bottlenecks from Russia.
European gas reserves decline – Data: AGSI4. A shortge of truck drivers causes UK fuel crunch
Brexit has accelerated the exit of European truck drivers from Britain. According to the UK's Office for National Statistics, the number of large goods vehicle drivers decreased to 275,000 in March 2021 from 304,000 the previous year. Drivers with EU nationalities dropped by nearly 40% in a year, to 28,000 from 44,000.
UK LGV drivers by nationality – Data: ONG5. Norway's krone outperforms all major peers on oil boost
The Norwegian krone has been the best performer among Group-of-10 currencies over the past month, even gaining ground against the dollar, as oil prices rallied. Norway is one of the countries with the highest share of fossil fuels exports. Crude oil, gas and refined oil make up more than 50% of total Norwegian shipments.
Krone outperforms – Image: Koyfin6. Inflation is running high...everywhere
Inflation charts are climbing to levels not seen in a long time across major economies as widening demand-supply gaps drive up raw material and commodity costs against the backdrop of the global economic recovery from the pandemic. Consumer prices in Germany rose 4.1% in September from a year earlier, the fastest pace since 1993, while the US inflation rate is running at 5.3%, close to the highs of July 2008. Among emerging markets, Brazill and Russia are also struggling to contain price pressures.
Inflation is rising across economies – Image: Koyfin7. The bond bears are on the move
The bond market is one of the best barometers of inflation expectations. Over the past month, government debt yields from the US to Germany and the UK have climbed as investors priced in the prospect of much higher consumer-price pressures. The 10-year Treasury yield rose by more than 25 basis points in that period and now stands just above 1.60%. Similar UK rates climbed more than 40 basis points. While German bund yields remain in negative territory, they rose from -0.35% to -0.15% over the past month.
Bond yields surge on inflation fear – Image: Koyfin8. Brent-WTI spread widens the most in the past year
Brent crude is trading at a premium of about $4 per barrel over WTI contracts. Brent is the most used type of oil in Europe and a surge in natural gas prices encouraging the region’s utilities to switch oil. According to the ING Commodities Strategy Team, the Asian spot LNG market is trading at an oil equivalent of around $320 per barrel, compared to a Brent Price of US$81.
Brent-WTI spread chart – Image: TradingView9. Markets aren't really convinced inflation will be `transitory'
Central banks have reiterated many times in recent months that the surge in inflation will prove to be transitory, but markets aren’t quite buying into that narrative. The 10-year US breakeven rate, one of the benchmarks for measuring market expectations for inflation, stands at 2.4% and remains close to its 2013 highs. This suggests that the market expects inflation over the next 10 years to average slightly above the Fed's current Average Inflation Target -- exceeding the 2% “modestly” and “temporarily” to offset past low inflation.
US breakeven chart – Image: Koyfin10. Are we at the beginning of a `commodity supercycle?'
The CRB Commodity Index – a basket of 19 commodities – is still roughly halfway from the all-time high reached in 2008. During the last so-called commodity supercycle between February 1999 and August 2008, the CRB index gained about 420%, while today the index is only up by 120% from April 2020 lows.
Commodity supercycle? – Image: KoyfinMarkets in this article
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