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Prices to come off the boil in 2022

Following sizzling rallies in the prices of energy commodities in 2021, we expect prices to ease back in 2022 on the back of lower growth in demand and improved supply. Current high prices will incentivise producers to raise output and will lead to some rebuilding of global stocks by spring 2022, which will allay fears about supply. Of course, the main risk to our forecasts, particularly for natural gas and coal, is unseasonable weather which could keep prices higher for longer.
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More from Energy

Energy Data Response

US Weekly Petroleum Status Report

Commercial crude oil stocks fell last week due to exports rising faster than imports and refineries stepping up operations. But high petroleum product prices should hold back demand in the coming months, which, along with further Strategic Petroleum Reserve releases, should send commercial stocks upward.

18 May 2022

Energy Data Response

US Weekly Petroleum Status Report

Commercial crude stocks will be boosted in the coming weeks by the ongoing release of strategic reserves, regardless of what is happening with domestic oil demand. That said, there are now clear signs that sky-high prices are deterring demand for petroleum products, which should continue for some time yet.

18 May 2022

OPEC Watch

OPEC Monthly Oil Market Report (May)

OPEC lowered its forecast for Russia’s oil production this year, but still expects it to rise. By contrast, we think Russia’s output will fall and see rising pressure on OPEC to step up output in response.

13 May 2022

More from Commodities Team

Commodities Outlook

Energy supply squeeze to delay decline in prices

Low stocks ahead of winter in the Northern Hemisphere have sent energy prices soaring. In turn, higher energy costs have also constrained the production of other commodities, most notably industrial metals. Energy supply is likely to remain tight for at least the remainder of this year, which is a key reason why we have pushed back our forecasts for a broad-based decline in commodity prices into 2022. By then, once demand for energy has cooled and stocks have been rebuilt, commodity prices are likely to be dragged lower as global economic growth continues to slow. We think that industry and construction activity in China are on the cusp of a particularly deep downturn, which will be a key factor weighing on the prices of industrial metals.

28 October 2021

Commodities Weekly Wrap

Energy price rally may spill over to other commodities

Most commodity prices increased this week. Optimism over electrification, which was a hot topic during LME Week, seemed to feed through into higher industrial metals prices. But the prices of energy commodities were the pick of the bunch. Brent crude rallied throughout the week and briefly breached $85 per barrel on Friday. OPEC’s monthly oil market report showed that output in September was still 390,000 barrels per day short of target. As prices rise, there are growing calls for higher OPEC production. But it seems doubtful that the group could raise output much faster, unless it abandons the current quota system. Meanwhile, a cold spell that has blown through China has compounded upward pressure on energy prices. That is in addition to the Chinese government allowing coal-fired power prices to rise by up to 20% from base levels from Friday. Looking to next week, China is set to publish its September activity and spending data and Q3 GDP on Monday. We suspect that China’s economy contracted in q/q terms. So far, commodity prices have largely shrugged off the slowdown in China’s economy. And we wouldn’t be that surprised if they continue to do so as currently elevated energy prices spill over to other commodity markets by substantially raising production costs of agriculturals and metals.

15 October 2021

Commodities Economics Chart Book

Gas & coal surge to support other commodity prices

Natural gas and coal prices soared in September. In turn, this has raised the output costs of industrial metals, most notably those which are especially energy intensive such as aluminium and steel. At the same time, reports suggest that some electricity providers are starting to substitute natural gas and coal for oil. While we expect natural gas and coal prices to ease back from here, they are likely to remain high by past standards well into next year. Nevertheless, we doubt this will be enough to prevent industrial metals prices from edging lower in tandem with weaker economic growth in China.

5 October 2021
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