Oil Nears Three-Year High on Energy Crunch Fears

Oil prices steadied after fluctuating in a volatile session on Tuesday as traders weighed the effects that higher energy costs could have on the global economic recovery. Brent crude settled 23 cents lower at $83.42 per barrel, after earlier reaching a high of $84.23 and a low of $82.72 per barrel. On Monday, it hit $84.60, its highest since October 2018. U.S. crude futures settled 12 cents higher at $80.64 per barrel, ranging between $81.62 and $79.47.

Authorities from Beijing to Delhi scrambled to fill a yawning power supply gap on Tuesday, impacting global stock and bond markets amid concerns that rising energy costs will stoke inflation. Power prices have surged to record highs in recent weeks, driven by shortages in Asia and Europe. The energy crisis in China is expected to last through the year-end, impacting growth in the world's second-largest economy and top exporter.

In London and southeast England, some fuel stations remained dry after panic fuel buying last month, the Petrol Retailers Association said. "People are starting to realize that the risk of higher energy prices could derail growth," said Phil Flynn, an analyst at Price Futures Group in Chicago. "Is energy demand a good thing or a bad thing?"

Persistent supply chain disruptions and inflation pressures are constraining the global economic recovery from the pandemic, the International Monetary Fund said as it cut growth forecasts for the United States and other industrial powers. In its World Economic Outlook, the IMF trimmed its 2021 global growth forecast to 5.9% from the 6.0% forecast it made in July. It left the 2022 global growth forecast unchanged at 4.9%.

Even as demand grows, the Organization of the Petroleum Exporting Countries and allied producers, known as OPEC+, are sticking to plans to restore output gradually rather than quickly. The price of Brent has surged by more than 60% this year. In addition to OPEC+ supply restraint, the rally has been driven by record European gas prices, which have encouraged a switch to oil for power generation in some places. European gas at the Dutch TTF hub stood at a crude oil equivalent of about $169 a barrel, based on the relative value of the same amount of energy from each source, according to Reuters calculations.

The article states that Brent crude settled 23 cents lower at $83.42 per barrel, after earlier hitting a high of $84.23 a barrel and a low of $82.72 a barrel. On Monday, it hit $84.60, its highest since October 2018, impacting global stock and bond markets on concerns that rising energy costs will stoke inflation. Using Aggregate Demand and Supply Analysis, illustrate how rising energy costs would impact fluctuations in real GDP around potential GDP, considering that many economies globally have rolled out recovery plans.