Energy crunch stokes inflation, economic recovery fears

[BEIJING] Authorities from Beijing to Chennai scrambled to fill a yawning power supply gap on Tuesday, triggering global stock and bond market wobbles on worries that rising energy costs will stoke inflation and curtail an economic recovery.

Power prices have surged to record highs in recent weeks, driven by energy shortages in Asia, Europe and the United States, with an energy crisis in China expected to last through to the end of the year and crimp its economic growth.

And the impact of supply crunches in power and manufacturing components is showing up in data, which is deepening disquiet.

A sell-off in global stocks and bonds extended into Tuesday, taking short-dated US Treasury yields to 18-month highs, while world stocks fell for a third straight day on fears that energy prices were putting a dampener on economic growth.

Data on Tuesday showed Japanese wholesale inflation hit 13-year highs last month, while shoppers in Britain slashed spending and China recorded a 20 per cent drop in car sales.

In its latest attempt to deal with the crisis, China said it will further liberalise coal-fired power pricing and force industrial and commercial consumers to buy from the market.

A widening power crunch has forced production curbs across China in industries such as cement, steel and aluminium as power producers, unable to pay for coal, cut output. The utilities have been unable to keep up with post-pandemic demand.

In India, the power ministry warned states that federal power producers will curtail supply to them if their utilities are found selling power on exchanges to take advantage of surging prices.

Asia's third-largest economy is facing large-scale outages as several power plants have low coal inventories as a result of the sharp spike in global energy prices.

The ministry said it had directed power companies to boost supply to the capital Delhi, whose chief minister warned on Saturday of a potential power crisis.

Oil rose towards US$84 a barrel on Tuesday, within sight of a three-year high, as a rebound in global demand after the Covid-19 pandemic caused price spikes and shortages in other energy sources. Coal has scaled record peaks and gas prices remain four times higher in Europe than at the start of 2021.

To address recovering demand Opec+, which groups the Organization of the Petroleum Exporting Countries and other oil producers led by Russia, is increasing output monthly as it undoes curbs it put in place to support prices and oversupply.

The price of Brent crude has surged by more than 60 per cent this year, supported by those Opec+ supply curbs as well as record European gas prices, which have encouraged a switch to oil in some places.

Brent crude was up 24 cents or 0.3 per cent at US$83.89 a barrel at 0810 GMT. On Monday it reached US$84.60, its highest since October 2018. US oil gained 21 cents or 0.3 per cent to US$80.73 and on Monday hit US$82.18, its highest since late 2014.

The sharp rise has meant Opec+ has come under pressure from consumer nations, with a US official on Monday saying the White House stands by its calls for oil-producing countries to"do more" to ease the situation.

In France, President Emmanuel Macron said on Tuesday the country wants to be a leader in green hydrogen by 2030 and build new, smaller nuclear reactors as part of a US$35 billion investment plan.

REUTERS