Daily Brief: The Oil Price Hit Its Highest Level Since 2018, Much To China’s Dismay…

Daily Brief: The Oil Price Hit Its Highest Level Since 2018, Much To China’s Dismay…

over 2 years ago3 mins

It may not be on the run from a remorseless intelligent killing machine – at least, not yet – but resurgent oil prices have become just the latest trouble plaguing China.

What does this mean?

After dropping below zero thirteen months back, the price of oil has rapidly recovered: it hit its highest level since 2018 on Tuesday following optimistic forecasts from OPEC+, the influential group of major oil-producing countries and their allies.

Oil price
Source: The Wall Street Journal

OPEC+ reckons the global supply glut caused by the pandemic is nearly gone, and that inventories of stored oil will fall sharply in the second half of the year as restrictions ease and the global economy rebounds. The alliance accordingly greenlit a planned increase in daily oil production starting next month – while downplaying concerns that a potential Iranian return to international oil markets would materially alter supply-and-demand dynamics.

Why should I care?

The bigger picture: Red alert.

It’s not just oil: higher prices for all sorts of commodities are proving to be a headache for communo-capitalist China and its resource-hungry growth ambitions. As if that wasn’t bad enough, a recent rally in the international value of the country’s currency, the yuan, has made its exports more expensive and therefore less attractive overseas. China’s responded by resorting to measures it last used during the global financial crisis, telling local banks they need to hold more foreign currencies in reserve. Making it harder to buy the yuan using such currencies should help stem its rise.

Yuan

Zooming out: Optimism is contagious.

It’s not just OPEC+: on Tuesday, the influential OECD raised its forecast for global economic growth this year from 4.2% to 5.8%. Subsequent growth of 4.4% in 2022 would bring most of the world’s economies back up to pre-pandemic levels, with the US and a freshly philoprogenitive China expected to be setting new records by the time 2023 rolls around.

Up and down
Source: Bloomberg

Keep reading for our next story...

Eurozone Inflation Is On The Rise

EU image

Eurozone inflation rose to its most rapid rate since late 2018 last month, with factory bottlenecks partly to blame for prices popping across the continent.

What does this mean?

The prices of goods and services in Europe’s 19 solely euro-spending states increased by a higher-than-expected 2% in May compared to a year before. And while rising energy prices had a big hand in that, the region’s factories may be playing an even more significant part.

Manufacturers are struggling to keep up with rising demand as European economies reopen: inventories of finished goods fell at the fastest rate since 2009 last month. But eurozone factories took advantage of this short supply to pass on higher input costs to customers: according to one survey, May saw them hike their prices by the most in more than 18 years.

Supply delays and materials prices

Why should I care?

For markets: Inflation needs to chill.

This is the first time inflation has breached the European Central Bank’s (ECB’s) just-under-2% target since October 2018. That’s likely to fuel fears among some investors that the ECB will be forced to unwind pandemic-induced economic support measures – such as ultra-low interest rates and quantitative easing – sooner than expected. The central bank, however, is following its US counterpart in claiming that this uptick in inflation is only temporary.

Inflation record

The bigger picture: Germans are industrious.

Activity is increasing at European factories as they attempt to get back up to speed, with a key measure of manufacturing growth hitting an all-time record in May. That bodes well for industrial powerhouses such as Germany – and according to new data out Tuesday, German unemployment decreased by more than expected last month. While the rate remains higher than it was pre-pandemic, it’s still lower than anywhere else in Europe.

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