Feature: OPEC faces a new menace from jumpy central bankers

OPEC has ignored the pleas of US President Joe Biden to pump more oil, but the cartel may find the actions of under-fire central bankers harder to disregard.

The custodians of the world's monetary system and watch keepers of inflation are deflecting blame for the rising cost of living onto energy producers. They argue energy prices are causing inflationary pressure that is now threatening the global economic recovery.

The OPEC+ alliance with Russia fanned these flames on Nov. 4 when it resisted demands by the US to raise output by more than 400,000 b/d.

S&P Global Platts-assessed Dated Brent crude -- used to price two-thirds of the world's crude -- has gained 63% in the year-to-date, cresting $86/b in late October. The rally has coincided with gasoline prices in the US -- the world's largest consumer -- remaining above $3/gallon and a surge in gas prices across Europe, now described as an energy crisis.

Gas markets are even more frothy. The Platts-assessed day-ahead TTF contract in Europe hit new record highs in early October and remains around five times the three-year average, according to S&P Global Platts Analytics.

The JKM -- the global benchmark for spot LNG -- hit a new all-time high of $56.33/MMBtu on Oct. 6 and has hovered around $35/MMBtu since.

Without question, surging energy and commodity prices have helped to push up inflation globally. Inflation busted the European Central Bank's 2% comfort zone this summer, with half the increase attributed to higher energy costs. In the US, consumer price growth is well above 5% and a level neither the Biden administration, nor the Federal Reserve, can leave unchecked indefinitely.

OPEC is also awake to the risks of supply driven inflation.

"Sovereign debt levels in many regions, together with rising inflationary pressures and potential central bank responses, remain key factors requiring close monitoring," the group said in its October market report.

Even with these economic risks, Platts Analytics expects global oil consumption to reach 103.2 million b/d in 2022, which is 700,000 b/d above pre-pandemic levels.

"The Platts Analytics-coined 'winter of discontent' is still ahead and will bring pain and suffering to many low-income households potentially putting the brakes on the economic recovery exacerbated by capital and labour shortages across all sectors," wrote Chris Midgley, global head of analytics at Platts Analytics, in a recent research note.

'Policy blunder'

In response to OPEC's restraint, the US may release more crude from its strategic petroleum reserve but its impact on prices is likely to be temporary.

However, a misstep by the world's central banks in the speed of tapering monetary stimulus and increasing lending rates too quickly could have a longer lasting impact on energy demand. The rising cost of living across OECD nations -- accounting for over half the world's consumption of crude -- is now becoming a politically toxic subject that policymakers are coming under increasing pressure to tackle. However, raising interest rates too quickly risks snuffling out resurgent demand for commodities, which has tracked the recovery from the COVID-19 pandemic.

For the time being, central bankers are keeping energy prices and monetary policy separate. In the UK -- where surging gas prices have triggered a wave of power retail bankruptcies and fears of blackouts -- Bank of England governor Andrew Bailey has gone on the record to say raising interest rates won't bring down the cost of energy.

The governor's view is shared by Sylvain Broyer, chief economist, EMEA at S&P Global Ratings.

"Raising rates too quickly would be a policy blunder," he said in an interview. "There is nothing a central bank can do now that will tackle the type of inflation we have globally."

Which leaves OPEC and Russia carrying the blame, unless they pump more oil and gas.