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2023 - Year of Shortages

Yesterday OPEC+ announced a 2 million bbl per day cut from November. The important changes were not limited to the quantum of cut but also that it would remain in place till December 2024. And meetings will be every two months for ministerial levels. This was accompanied by firm wordings during the press conference, which indicated that from now onwards policy will maintain a long-term view with investable price stability.

Though this level of certainty is good in the long term as it provides companies a certain outlook and invests in capacities for the future. But in short term especially next year it adds to the supply shortage that is already hampered due to other policy decisions made by Europe and USA.

There are already signs of these supply disruptions expanding as Europe and the G7 are set to announce a price cap on Russian oil that would result in lower production by Russia and shipping difficulties as insurance would be restricted to supply within the price cap.

All these factors indicate a large deficit in energy markets unless the demands are crashed by the monetary policies. But thus would have a delayed and limited impact as it would take two or three quarters to fully impact demand. Meanwhile, prices would have surged a lot from current levels.

In addition to this, will be another crucial shortage of Food. There are natural and man-made reasons for this kind of shortage. For natural reasons like droughts and floods that have intensified, the level of crop damage is immense. For example, the recent Hurricane Ian that landed in Florida destroyed 30-40% of orange plantations leading to the highest orange juice prices in decades which is essential for Americans. For man-made reasons war and sanctions, the supply chain of fertilisers and Food raw materials is distributed to large extent leaving 10-20% of arable land with lower yield or going unsown. This will make next year's food shortage much higher than estimated now.


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