The Day at a Glance | October 5 2021

The Top

*OPEC+ maintains plan to increase production in 400 thousand daily barrels in November despite growing demand and limited supply in the energy market.

*Fears of a spillover in the Chinese real estate market were revived with Fantasia and Sinic under scrutiny; high risk bonds in dollars fell to their lowest levels in 8 years.

*PMI in Europe shows that inflation for consumers has started to slow recovery among services.

Economic environment

Energy crisis. Energy prices are ascending this week with oil at its highest level since 2014 and natural gas prices 136% above the level they were at 12 months ago. India has informed that it only counts on 4 days of inventory of coal for electricity production; German electric terminals are running out of fuel; and China has imported coal shipments from Australia despite having prohibited this kind of import due to a trade dispute. The decrease in energy supply is partly related to the transition towards clean energies, which could be more complicated than initially expected. Intermittent energy generated by renewable sources has caused scarcity in markets, like Europe, who had to drain its natural gas inventories in order to have enough electricity without breaking any coal emission regulations last winter. In China and the U.S., efforts to reduce production capacity among coal plants in efforts to reduce emissions could have negative impacts this winter, when natural gas prices (the main clean energy alternative) are at their historically highest levels and infrastructure of renewable sources are still not enough to meet demand. Coal prices have increased more than 300% in the last 12 months because of less capacity and growing demand for the energy resource since the economic reopening. Oil has also seen growing prices due to these circumstances – fuel oil and other derivatives offer alternatives as countries try to ensure consumables for electricity production. Ultimately, growing energy prices have turned into an additional risk for inflation.