Rising oil prices may not ease until second quarter in 2022 – IMF

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Surging energy prices across the world may not ease until the second quarter of next year, this is according to the International Monetary Fund (IMF).

The development, according to the IMF will have negative repercussions to especially African economies who are already under intense pressure as well as others.

The Fund however predicts the rising prices will begin to fall when demand ebbs and supplies adjust.

“Our expectation is that these prices will revert to more normal levels early next year when heating demand ebbs and supplies adjust. We expect natural gas prices to normalize by the second quarter as the end of winter in Europe and Asia eases seasonal pressures, as future markets also indicate.

While supply disruptions and price pressures pose unprecedented challenges for a world already grappling with an uneven pandemic recovery, the silver lining for policymakers is that the situation doesn’t compare to the early 1970s energy shock,” it said.

The Fund says an unprecedented combination of factors is roiling world energy markets, rekindling the memories of the 1970s energy crisis and complicating an already uncertain outlook for inflation and the global economy.

Spot prices for natural gas have more than quadrupled to record levels in Europe and Asia, and the persistence and global dimension of these price spikes are unprecedented.

Meanwhile, the ripple effects of surging coal and oil prices are being felt all over the world. Brent crude oil prices, the global benchmark, recently reached a seven-year high above 85 United States Dollars (USD) per barrel, as more buyers sought alternatives for heating and power generation amid already tight supplies.

Coal, the nearest substitute, is in high demand as power plants turn to it more. This has pushed prices to the highest level since 2001, driving a rise in European carbon emission permit costs.

The International Monetary Fund however warns, if prices stay as high as they have been, it “could begin to be a drag on global growth.”

It urged central banks to look through price pressures from transitory energy supply shocks, but also be ready to act sooner especially those with weaker monetary frameworks if concrete risks of inflation expectations de-anchoring do materialize.

The Fund further asked governments to act to prevent power outages in the face of utilities curtailing generation if it becomes unprofitable as well as provide support to low-income households to help mitigate the impact of the energy shock to the most vulnerable populations. Enditem

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