Could Rising Prices Hurt Demand?
October 13, 2021
The API and DOE inventory reports are both delayed one day due to the Columbus Day Holiday on Monday.
The EIA in a bulletin put out last week on propane and said that conditions were ripe for a supply squeeze this winter given low inventories. Flattish supply and resilient demand have driven US propane inventories significantly below the 5-year average. Assuming the same weekly withdrawals as last year, the US would end the withdrawal season with an untenable 12 million barrels in storage, or 4 to 6 days of supply. We have been talking about low inventories for some time now and have been telling everyone to fill up now to avoid any headaches later.
The energy markets consolidated yesterday and took a brief pause. At this point, most market watchers would say this rally isn’t over and more upside is ahead but some of the negative economic news has helped this pause and could even give this market a pullback.
The International Monetary Fund yesterday said the global economy is losing momentum and it now sees global growth of 5.9% this year, down one-tenth of a percentage point from July. It also sees growth slowing to 4.9% next year. Analysts believe that higher energy prices are hampering growth forecast and in turn, startled the market.
The bears will need to take prices substantially lower to change the outlook of the current uptrend. At best maybe these markets settle into a range at these higher levels, if they are not yet ready to sell-off.
Market analysts are beginning to show more concern that rising prices will hurt demand in the long run. “People are starting to realize that the risk of higher energy prices could derail growth, “said Phil Flynn, an analyst at Price Futures Group in Chicago.
The ZEW indicator of economic sentiment in Germany fell for the fifth consecutive month, unveiling the latest in a number of indicators showings supply bottlenecks holding back recovery in Europe’s largest economy.