In this issue:

• Global Energy Update

• Recharging the Energy Transition?

• Five Ways to Make a Meaningful Impact for the Causes you Care About

• Chart Corner

Global equity markets have given back some of their year-to-date gains in September while government bond yields have moved noticeably higher in recent weeks. The market action can be attributed to mixed economic signals and messaging from central banks. On the latter, the Bank of Canada and U.S. Federal Reserve both decided to hold rates steady at recent policy meetings, while the European Central Bank raised rates yet again. All three emphasized the need to tread carefully as they try to ensure interest rates stay high enough for long enough to stem inflationary pressures. Recent North American inflation readings suggest pricing pressures have begun to perk up, driven in part by oil prices. We discuss oil in more detail below.

Global Energy Update

Crude oil and refined products like gasoline, diesel, and jet fuel have all been on a sharp upward trajectory since June and are trading near highs for the year. Global demand and supply have both been responsible for the price gains in recent months.

Demand has been stronger than expected, driven by a more resilient economy, particularly in the U.S. where the summer travel season was notably strong. Demand in other parts of the world, like Latin America and Africa has also been stronger than expected. And, while China’s economic recovery following its reopening earlier this year has underwhelmed, its crude oil imports through the first half of the year have set a record pace, with much of it being deployed into the country’s oil inventories for future use. The International Energy Agency (IEA) estimates that roughly three quarters of the increase in world energy demand this year is expected to be driven by China.

The supply side of the equation has been as impactful. Over the past month, Saudi Arabia and Russia – the world’s biggest crude oil exporters and second and third largest producers, respectively – said they would extend their production cuts to the end of the year. Most market participants see this as a resolve to maintain higher oil prices, while Saudi Arabia has countered that sustainability of global demand is uncertain, and the country is merely tempering production to avoid oversupply.

Historically, the supply and demand imbalances that have created elevated oil prices often resolved themselves over time. Demand has typically deteriorated when prices are elevated as consumers look to moderate the impact of higher costs. Meanwhile, oil producers have predictably raised production at more profitable price levels in the past, leading to increased global supply. Lower demand, increased supply, or a combination of both have driven prices lower in prior periods.

Our analysts expect global oil demand to moderate over time as higher prices and slowing economic activity eventually take their toll. We have less conviction on the supply side where there has been a notable shift in recent years with oil companies demonstrating more discipline and patience. They have been less willing to raise production at higher prices and have clearly prioritized profitability over revenue growth. Moreover, major producers like Saudi Arabia and Russia appear intent on maintaining elevated prices for the foreseeable future, although predicting their approach from one year to the next has been fraught with challenges.

High oil prices present a headwind to inflation, which had been on a downward trajectory for most of the year until recently. This is yet another challenge for central banks, who remain steadfast in their focus on ensuring inflation can move lower and back to their long-term targets. We expect global markets will remain hyper focused on inflation through the rest of the year.As the energy security imperative rejuvenates the green energy shift, our firm explores the challenges ahead and illuminates the opportunities that may emerge. Read More

No matter where you are in your charitable giving journey, there are many ways you can make a meaningful difference for causes that are important to you. Join our firm virtually on October 5th at 1:00 p.m. EST to explore ideas and actions you can incorporate into your charitable activities and find out how to integrate charitable giving as part of your wealth planning. Register Now

~Shawn Milligan | Senior Wealth Advisor | The Milligan Private Wealth Management Team | RBCDS     

               

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