June 10, 2023
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Massive food and fuel inflation wreaks havoc on developing economies | OilPrice.com

The United States is currently struggling with increased commodity prices, including high fuel and food prices. In spite of gasoline prices have fallen significantly from peaks above $5, they are still 10.6% higher than a year ago; diesel is 46.5% higher, while food prices have risen 11.4% in the past year, marking the biggest annual increase in 23 years. According to experts, inflation in the US may have peaked in the summer and fuel prices will drop another 11% in 2023, but still it will take years for prices to come down of this year’s highs. Although this does not sound very encouraging, the problem is much worse in developing economies. According to the latest data from the World Bank Commodity Markets Outlook ReportThe shrinking value of currencies in most developing countries is driving up food and fuel prices in ways that are likely to continue to deepen the crises many already face.

According to the World Bank, in nearly 60 percent of oil-importing emerging markets and developing economies, the price of oil in domestic currency has risen since Russia’s invasion of Ukraine, thanks to weakening exchange rates.

Additionally, in nearly 90 percent of these economies, wheat prices have risen more in local currencies than in US dollars.

At the regional level, food price inflation in South Asia averaged more than 20% in the first three quarters of 2022. Other regions, including Latin America and the Caribbean, the Middle East and North Africa, sub-Saharan Africa and Eastern Europe and Central Asia, have experienced food price inflation averaging between 12 and 15 percent. East Asia and the Pacific have fared better than most developing countries, in part because of stable prices for rice, the region’s staple crop.

Related: IEA expects demand for all fossil fuels to peak in next decade

“The combination of higher commodity prices and continued currency depreciation is leading to higher inflation in many countries,” the World Bank notes, warning that policymakers in emerging markets and developing economies “have limited options to manage the strongest global inflation cycle in decades.”

It’s getting worse. These emerging economies must “prepare for a period of greater volatility in global financial and commodity markets,” writes World Bank Prospects Group Director and EFI Chief Economist Ayhan Kose.

Lower fuel prices

In the United States, the World Bank has predicted that energy prices will fall 11 percent in 2023 after rising 60 percent this year following Russia’s invasion of Ukraine. The World Bank has forecast that Brent crude will average $92 a barrel in 2023 before falling to $80 in 2024, still well above the five-year average of $60.

Both natural gas and coal prices will decline in 2023 from record highs in 2022, but U.S. natural gas and Australian coal prices are still expected to double their five-year average by 2024, according to the bank. the price of gas can be almost four times higher.

The World Bank also predicted that Russia’s oil exports could decrease by up to 2 million barrels per day due to EU sanctions on Russian oil products and insurance and shipping restrictions, which will come into effect on December 5.

These predictions appear to be in line with recent predictions Moody’s research report.

According to the report, the industrial output will fully stabilize in 2023, but will remain below the level of recent peaks. Analysts note that commodity prices have declined from very high levels earlier in 2022, but have predicted that prices will remain cyclically strong through 2023. This, combined with modest volume growth, supports strong cash flow generation for oil and gas producers. .

Moody’s estimates that US energy sector EBITDA for 2022 will be $623 billion, but will fall to $585 billion in 2023. However, analysts say low fixed assets, growing uncertainty about future supply expansion and a high geopolitical risk premium will continue to support cyclically high oil prices. Meanwhile, strong export demand for US LNG continues to support high natural gas prices.

One particular difference from that report is how bullish analysts are on the Oil Field Services (OFS) sector.

Growth in oilfield services (OFS) demand, coupled with increased drilling and completion activity, will further increase pricing power and support significant earnings growth for OFS companies, the analysts wrote.

By Alex Kimani for Oilprice.com

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