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Bracing for another wave of energy commodity-driven turmoil
The impact of commodity market volatility on the global economy appears to have stabilized, as countries around the world implement coping mechanisms following the sustained turmoil of 2022.
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Coal barges queue up to be pulled along Mahakam River in Samarinda, East Kalimantan, on Aug. 31, 2019. REUTERS/Willy Kurniawan/File Photo (Reuters/Willy Kurniawan)
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he impact of commodity market volatility on the global economy appears to have stabilized, as countries around the world implement coping mechanisms following the sustained turmoil of 2022. However, despite the measures taken to mitigate the effects of such instability, experts remain cautious as to the potential for further disruption.
Indeed, with factors such as geopolitical fragmentation, extreme weather events and supply chain disruptions continuing to pose significant risks, the future stability of the commodity markets and their impact on the global economy remains uncertain.
We believe that energy commodities remain the largest potential source of future risk to the global economy, particularly given the ongoing obstacles faced in the transition towards more sustainable energy sources. Despite increasing efforts to shift toward renewable energy, many countries still heavily rely on fossil fuels, and the transition is not happening quickly enough to avoid potential economic disruption.
Additionally, the structure of the energy market, especially the oil market, is adding further pressure to the recently recovered global economy. The recent volatility in various global economic indicators, resulting from the sudden decision by the OPEC+ to cut its production target by 1.66 million barrels per day until the end of 2023, is a clear example of how one group's actions in imperfect market structure can trigger economic turmoil through specific channels.
Furthermore, as the world partly enters the summer season, countries such as China, India and several northern hemisphere nations, which were particularly hard-hit by the energy crisis in 2022, are expected to experience a cyclical increase in demand for energy commodities.
Compounding the issue is the fact that abnormal heat waves have been observed across Asian countries, signaling a potential for record-breaking levels of demand for energy commodities this summer.
To prevent another wave of energy crisis, we believe that countries around the world have been seen implementing or in the process of implementing measures to address their energy requirements before they reach their peak this year.
