The problem isn’t limited to India. Droughts across western Europe – particularly Italy, which represents around 50 percent of total EU production – are predicted to reduce the bloc’s milled rice production by 21 percent this year. In short, skyrocketing global food prices preceded the war in Ukraine. Deal or no deal, a perfect storm (or lack thereof) of pressures risks continuing to threaten supply, with ripple effects aplenty.
No plus-sized increases from OPEC Plus
The White House had desperately hoped that the OPEC+ meeting this week would lead to a sizeable increase in oil production. Instead, the group responded with one the smallest oil production increases ever, announcing on Wednesday that it will pump an additional 100,000 barrels per day next month. Compare that to is commitment in June to boost output by 648,0000 barrels per day in July and August. This amount is unlikely to do anything to cool crude prices. But the problem here isn’t so much unwillingness as inability. Even if OPEC+ had pledged a bigger production hike, it is unclear if its member states would have had the capacity to pump more. In May, OPEC+ pumped nearly 3 million barrels a day less than its collective production target, stymied by slowing production in Russia, chronic problems in Nigeria and Angola, and, more broadly, limited recent investment in the oil sector’s development. Saudi Arabia, which is the member with the greatest spare capacity, is nearing its pumping limit.
That said, crude prices have already dropped significantly in recent months – in large part thanks to decreasing demand. Global slowdown, which seems increasingly likely, will continue the trend. It’s mixed news, certainly. But could such a slowdown be the opportunity that the US needs to launch much-needed investment in production, at home and abroad?
Gas export curbs down under?
The oil question is just one part of today’s larger conundrum. The gas market is thornier yet. Australia, one of the world’s biggest gas exporters, is considering restricting exports of the fuel as the country struggles to cope with domestic shortfalls and surging prices. A decision is expected in October. If curbs do kick in, that could roil an already tight global gas market and push up prices for consumers worldwide. Cash-strapped countries like Bangladesh, already facing a gas shortage and the prospect of several years of rolling blackouts, would be hit hardest. Europe wouldn’t do so great either.
But remember: Australia is not short of gas, per se. The problem is that global energy companies exporting gas from Australia’s east coast have not been required to reserve a set amount for the domestic market at regulated prices, and domestic consumers won’t pay the high prices that the firms can fetch on the global LNG market.
The world’s steel engine stalls
China is importing, exporting, and producing less steel as a property crisis – compounded by COVID-19 lockdowns and corresponding slowdown – threatens the country’s construction-fueled growth model. Executives are warning that as many as one-third of China’s steel mills could go belly-up. The slumping steel demand has weighed on Chinese steel prices, with the country’s steel price index down 14 percent from the year’s peak. Futures for iron ore, a key ingredient for making steel, have also declined. The country is imposing caps on production across the steel value chain. And while a massive stimulus driven by infrastructure spending could prop up steel demand, Beijing has thus far signaled unwillingness to back such a large-scale investment.
The bigger question though is what a Chinese steel slump means for the international market. Right now, the story is one of stumbling international prices thanks to weak demand. But steel is an industrial necessity and China is the engine of international steel supply: In 2020, China produced more than half of the world’s steel. If production really does slow significantly, and mills do go belly-up, the next chapter of this story could be one of new supply crisis, globally, and skyrocketing prices with it.
Global manufacturing slump – in an era of shortage