Energy inflation to ease in 2022: Moody’s

Rising energy prices should ease in 2022, says Moody’s Investors Service in a new report.

Crude oil prices have surged by about 20% since August, while natural gas prices are up 50% in the U.S. and have doubled in Europe and Asia, noted the rating agency in a new report.

“The simultaneous surge in energy-related commodity prices across geographies is a result of demand outstripping existing supply amid a rapid rebound from shuttered economies,” Moody’s said. “It also reflects a long-term decline of investment in production of all types of fossil-based fuels, which hampers the industry’s capacity to quickly respond to demand surges.”

However, Moody’s expects energy prices will start to ease in 2022 “because some factors contributing to the current market dislocations are transient and will be resolved soon.”

These factors include unusually low inventory levels for natural gas in certain markets, increased demand due to weaker than usual contributions from hydro and renewables, and temporary production declines in certain segments.

“We expect that it will take the best part of 2022 to resolve the dislocation in the international gas markets and ease global gas prices, amid the restart of [liquid natural gas] capacities,” Moody’s said.

The oil market has some capacity to deal with the spike in demand, Moody’s said, but that “relies on OPEC+ producers to continue reversing production cuts put in place in 2020 to balance the market amid a sharp fall in demand.”

At the same time, companies will need to start boosting investment for oil and natural gas prices to decline in the medium term, the report said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.