OIL AND GAS ON THE RISE, AND THE GREEN CAR ENHANCES COMMODITIES
It has a certain effect, for those who remember the eighties, to acknowledge that Italian inflation, although on the rise, it is well below Germany by a full point (3,9% against 5,2% in November) not to mention the United States (7%). But satisfaction gives way to restlessness if you look at the energy data: the prices of energy goods rise in a sustained manner (+29,1%) even before the next increases already announced. The increase recorded in 2021 (+14,1% against a drop of 8,4% in the previous year) has already contributed decisively to the increase in consumer prices: +1,9%, at the levels highest since 2012. But the statistic gives only a partial measure of business concerns, awaiting the protests coming from private individuals when the new tariffs will turn into high bills.
The higher costs of commodities, in fact, they go to hit the recovery of the manufacturing industry which is unable to unload the higher prices on the final price lists, otherwise the recovery of the margins of the companies, still recovering after the lockdown, will be interrupted. And the forecasts, with regard to raw materials, look upwards.
Applies to oil floating at highs since 2014 with an increase of 12% since the beginning of 2022. Investor sentiment remains firmly bullish also because OPEC+ is not supplying enough to meet strong global demand, partly due to technical and political difficulties (Libya is unable to respect its quota) partly because Western Big Oils are adapting to the scenario agreed in Glasgow on global warming (US inventories are at their lowest since October 2018). The result, according to Vitol, one of the largest independent commodity brokers, is that Crude's rally will continue due to the contagion, the situation that occurs on the market as short-term futures are more expensive than medium-long term contracts (backwardation). It is therefore not surprising that the energy sector competes with the banks for the title of the best sector at the beginning of 2022, the year of the revenge of the "value" economy over the technological ones.
But on the crude oil market and even more so on the gas market geopolitical tensions loom. Of course, the reference natural gas for Europe today is a 87 euros per MWh, a long way from the peak of 180 euros reached in December. A large group of gas carriers arrived from the United States, boosting imports of liquefied natural gas (LNG) to a two-year high, offsetting declines in Russian shipments. However, the risk of a escalation of the Ukrainian crisis requires you to keep your guard up.
Complicating the picture is the trend of other raw materials, no less strategic in the era of energy transition. It is today's news that electric car sales in Europe, supported (except in Italy) by generous incentives, have exceeded that of diesel for the first time. Good news except for the multiplier effect on commodity prices indispensable for now: cobalt, lithium, manganese, nickel, copper +57%. It is difficult to think that the pressure on a large part of these prices will decrease appreciably in the spring, as well as it is not excluded by the most optimistic observers.
The predictions about drop in consumptionHowever, they are still conditioned by technological problems still to be solved. For oil, for example, it is possible to hypothesize a drastic drop in consumption to produce electricity or to run cars or planes (with a leap in technological quality thanks to hydrogen) but it is much more difficult to hypothesize the exit from plastic (partly limited by recycling, partly by agricultural raw materials) which was produced in 2020 in 367 million tons.
This is the general picture in which Italy must face high bills in the short term which threatens the manufacturing industry. The stock market performance of Enel (+0,9% at 13pm), A2A (+0,5%) demonstrates that the market does not believe in measures that are too penalizing for the world of utilities. Analysts, reading the various reports, are convinced that the decree to the study of the executive may contain a mix of measures, from a further reduction of VAT on the energy bill, to the shifting of system charges from bills to general taxation and the use of proceeds from the auctions of CO2 certificates; other measures on corporate balance sheets, in terms of intervention on extra profits. But the interventions in the short term, while necessary and urgent, do not shift the problem much. They are needed structural interventions, starting from the increase in national production where it is possible, such as in gas.
