1 hr ago
Energy Prices Raise Winter Crisis and Interest Rate Fears
Energy prices are rising because wars and attacks have disrupted supplies.
Oil became more expensive, but diesel and natural gas prices rose even faster.
Diesel is important for trucks, businesses and other parts of the economy.
Europe also has less stored natural gas than usual before winter.
This could make heating and electricity more expensive.
High energy costs can also make factories produce less.
Central banks may raise interest rates to fight the inflation caused by these prices.
Governments may instead help people by cutting taxes or offering fuel support.
Experts warn that Northern Europe could face a difficult winter if supply problems continue.
Brent crude rose above $100 a barrel as diesel and natural-gas prices climbed even faster.
European natural-gas prices reached their highest level since late 2022, while US diesel prices hit a record.
Refinery disruptions, attacks on energy infrastructure and depleted stockpiles are tightening fuel supplies.
The European Central Bank warned that higher oil and gas prices could push inflation forecasts higher.
Markets expect two Bank of England rate increases by February, while governments face pressure to protect consumers.
- Who
- Central banks, governments, energy traders, producers and consumers are affected; the European Central Bank and Bank of England are responding to inflation risks.
- What
- Oil, diesel and natural-gas prices are surging as energy supplies and refining capacity remain constrained, raising the risk of winter inflation and higher interest rates.
- Where
- The pressures affect global energy markets, with particular concern for Europe and Northern Europe; US diesel prices have also reached a record.
- When
- The developments were reported this week, ahead of the colder winter season; markets expect two Bank of England rate increases by February.
- Why
- The Iran war, Ukraine’s attacks on Russian refineries, attacks affecting Middle Eastern energy infrastructure, low inventories and limited refinery capacity are restricting supplies.
Higher Rates to Contain Inflation
Government Support for Consumers
Response to rising energy prices
Higher Rates to Contain Inflation
Central bankers, including Christine Lagarde, warned that higher oil, gas and diesel prices could require interest-rate increases to contain inflation.
Government Support for Consumers
Governments may need to intervene through tax cuts or financial support to shield households and businesses from higher fuel costs.
Economic consequences
Higher Rates to Contain Inflation
Higher rates could help prevent energy-driven inflation from spreading through the wider economy.
Government Support for Consumers
Supporters of intervention point to the risk that high energy and electricity prices could make factories, including aluminum producers, unable to operate.
Key facts
- Brent crude
- Rose above $100 a barrel during the week.
- Diesel
- Futures in some regions exceeded $200 a barrel; US diesel prices reached a record.
- European natural gas
- Prices reached their highest level since late 2022, with inventories unusually low for the season.
- Interest-rate outlook
- Markets expect two Bank of England rate increases by February.
- Strait of Hormuz
- Before the war, it carried about one-fifth of global oil and liquefied natural-gas flows.
- Potential gas prices
- Major banks and consultants said European prices could return above €100 per megawatt-hour, about 25% above current levels.
- Policy response
- Italy has tax cuts in place for consumers, and Hungary announced help with car owners’ fuel costs.
Quotes
Evangelos Mytilineos
Executive chairman of Greek industrial company Metlen
“If I had talked to you about refining margins six months ago, we wouldn’t have known what we are really talking about. Now, whether you call it the crack spread or the refining margin, on liquid fuel, now we all know what it’s about.”
livemint.com
“Electricity prices are reaching levels at which companies which are not adequately prepared can’t produce aluminum.”
livemint.com
Shaikh Khaled Al-Sabah
Managing director for international marketing at Kuwait Petroleum Corp.
“We’re going to see a very difficult winter coming in Northern Europe. This is only the beginning.”
livemint.com
Sources
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