Global energy shortage threatens economic growth

Economic growth

The energy crisis is gaining momentum, with oil and gas shortages likely to affect the world through rising prices. Experts predict rising inflation, a slowing economy and increased instability. Shares in oil and gas companies have risen sharply.

On Monday September 28 WTI oil futures jumped 1% to $76.33 a barrel, the highest level since January and still rising for the sixth day amid fears of tight supply.

West Texas Intermediate crude rose $1.47 a barrel, or 2%, to $75.45 on Monday, while Brent crude rose $1.44 a barrel, or 1.8%, to $79.53, up 7.6% in five consecutive sessions of gains.

Goldman Sachs (GS) raised its year-end forecast for Brent crude from $80 to $90, raising its forecast for WTI to $87.

US oil inventories fall

Production disruptions in the US Gulf Coast after Hurricane Ida and other storms led to a sharp drop in oil inventories in the US and around the world. Data from the EIA (a division of the US Department of Energy) showed that US oil inventories fell by 3.5 million barrels to 414 million last week, the lowest since October 2018.

Energy shortages in Europe, the UK and China

Experts said colder weather in April and May caused Europe to need more gas supplies, but some shutdowns at gas fields in Norway and Russia, on the other hand, caused supply cuts.

As economist Warren Patterson pointed out, as a result of the crisis, Europe's gas storage tanks are only 72% full for the winter season, compared to the usual 87% at this time of year.

According to the UK Gasoline Retailers Association, 90% of UK petrol stations in major cities in England ran out of fuel on 27 September after panic buying exacerbated the supply chain crisis.

There were queues at UK petrol stations over the weekend economists compared the situation to the crisis of the 1970s.

China is experiencing its own energy crisis businesses have been forced to cut production and suspend factories due to Beijing's restrictions on energy consumption, energy intensity and tighter CO2 emission standards as part of climate change targets.

It is worth noting that ExxonMobil (XOM) shares, up nearly 44% YTD, rose 2.9% on Monday, while Occidental Petroleum (OXY), up 74% YTD, was up 7.9%.

The Energy Select Sector SPDRA ETF has gained 37.5% YTD, outperforming the broader market. The S&P 500 has added 32.6% since the start of 2021.