The Times - UK (2022-01-19)

38 Wednesday January 19 2022 | the times

Business

Oil price hits seven-year high

Continued from page 35
highs. In a research note, they said that
the oil market remained in “a surpris-
ingly large deficit” as Omicron was
having a smaller and likely briefer
impact on demand than that of Delta,
with the exception of China.
“Both confirmed cases and hospital
admissions are now on a downward
trend in South Africa and in London
and Boston, suggesting the impact
could be largely behind us by March in
advanced economies, with likely only
modest hits to [emerging market] de-
mand outside of China due to warmer
temperatures, fewer lockdowns and
small tourism sectors,” they wrote.
The impact would be offset in part by
demand for oil for power generation in

Europe and Asia, as extreme high gas

prices drive switching toward the

dirtier fuel.

The analysts expect that strong

global economic growth this year to

lead to “most economies transitioning

to a more endemic stage of the pan-

demic in the spring, helping support oil

demand to record highs”. They see de-

mand for jet fuel recovering strongly

amid pent-up demand for travel.

Oil stocks in Organisation for Eco-

nomic Co-operation and Development

countries would fall to their lowest level

since 2000 by the summer, while spare

Opec+ production capacity was expect-

ed to fall to historically low levels, they

said. That would drive prices higher, en-

couraging investment in new supply.

Analysis

P

redicting oil and

gas prices is

notoriously

difficult —

especially when

there’s a global pandemic

to contend with (Emily

Gosden writes). Just ask

Shell, which in April 2020

cut its dividend for the

first time since the

Second World War with a

prediction that it could

take until 2022-23 for

commodity prices to

return to “normal”.

In fact, the success of

vaccines and supply

constraints helped oil to

bounce back to surpass

pre-pandemic levels

easily last year, while gas

rose to record highs.

Oil’s march higher to

levels not scaled since

2014 has fuelled fresh talk

of a return to $100 a

barrel as soon as this

year. Analysts at

Goldman Sachs cited the

likely limited impact of

the Omicron variant as

one factor in their bullish

forecast yesterday.

The pandemic remains

one of the biggest

unknowns for demand,

with new variants

showing their capacity to

surprise either way. For

supply, political tensions

are a big uncertainty in

both the Middle East and

Europe, while the actions

of the Opec+ alliance and

American frackers will be

key. In the longer term,

the big question is what

the clean energy

transition means for

demand for oil and for

investors’ willingness to

invest in supply.

There is no consensus,

even in the near term:

only last week, America’s

Energy Information

Administration forecast

that Brent would average

$75 a barrel this year and

$68 per barrel in 2023 —

less than two thirds of the

price now predicted by

Goldman. And in

December, Citigroup

analysts forecast that

energy prices would

suffer a “radical drop”

this year amid

“significant oversupply”.

The only certainty is that

they can’t all be right.

Rising expectations that the Federal
Reserve will increase interest rates in
the United States has driven ten-year
US Treasury yields to their highest
level since January 2020.
Predictions that America’s central
bank will lift interest rates by more than
0.25 percentage points in March drove
ten-year yields to 1.85 per cent. The gap
between five and thirty-year yields fell
below 0.5 per cent for the first time since
the start of the pandemic in March
2020.
Markets are pricing in an increase of
more than 0.25 per cent ahead of the
Fed’s meeting in March after warnings
from prominent investors and bankers,
including Jamie Dimon, chief executive
of JP Morgan Chase, and Bill Ackman,
the investor and hedge fund manager,
that the central bank may need to lift

Rate rise warnings lift US Treasuries

BlackRock

boss defends

stakeholder

capitalism

Times Business Reporter

The chief executive of the world’s

biggest asset manager has defended its

focus on the interests of society as well

as on profits as being good business

sense.

In his annual open letter, Larry Fink

of BlackRock built on themes he raised

in previous missives to chief executives,

calling on them to find a purpose and to

take account of issues — including cli-

mate change — as part of stakeholder

capitalism, where companies seek to

serve the interests of all connected to

them. “Stakeholder capitalism is not

about politics,” he wrote, adding that it

was not “woke” and did not have an

ideological agenda but was capitalist in

that it was based on mutually beneficial

relationships.

Asset managers increasingly analyse

corporate performance on environ-

mental, social and governance issues to

boost returns, as policymakers push for

greater action on problems including

climate change and diversity.

Fink, 69, defended BlackRock’s

stance of engaging with companies on

the transition to a low-carbon economy

rather than divesting, saying that

businesses could not be “climate police”

but should work with governments.

“Divesting from entire sectors — or

simply passing carbon-intensive assets

from public markets to private markets

— will not get the world to net zero,” he

said. “BlackRock does not pursue

divestment from oil and gas companies

as a policy.”

BlackRock was founded in 1988 and

floated in New York in 1999, when it had

$165 billion under management. That

figure has grown to almost $10 trillion.

In his letter, Fink unveiled plans to

launch a centre for stakeholder capital-

ism, a “forum for research, dialogue,

and debate”. It would help to explore

the relationships between companies

and their stakeholders, he said.

After years of criticism from activists

focused on climate and other ESG

issues, BlackRock changed course in

2021 and cast a much more critical set

of proxy votes, such as backing calls for

emissions reports or the disclosure of

workforce diversity data.

Campaigners called the latest letter a

missed opportunity. Ben Cushing, a

campaign manager with the Sierra

Club, an American environmental or-

ganisation, said it was “just another re-

hashing of the same vague rhetoric,

without any meaningful new commit-

ment to actually help lead the necessa-

ry transition to a climate-safe future”.

borrowing costs by more than investors

expect.

The Fed’s more aggressive approach

to raising rates to tackle inflation

pushed New York’s markets sharply

lower. The technology-dominated

Nasdaq closed down by 2.6 per cent in

New York at 14,506.90, while the more

broadly based S&P 500 fell by 1.8 per

cent to finish at 4,577.11.

Investors are concerned that rapidly

rising inflation will force the Fed to

tighten monetary policy earlier than

had been expected. Swaps markets

have priced in four rate rises of 25 basis

points each to take place within a year.

Inflation hit 7 per cent in 2021, the

highest since 1982, driven by global

supply shortages pushing up business

costs combined and recovery from the

depths of the pandemic.

The Fed accelerated plans to taper

support for the economy at its last

meeting in December. A majority of its

eighteen policymakers expect interest

rates to rise at least three times in 2022.

Althea Spinozzi, a fixed-income

strategist at Saxo Bank, said that today’s

20-year auction could spark further

volatility in the long part of the yield

curve. “The yield curve is bear flatten-

ing as short-term yields rise faster than

long-term yields on expectations of a

more aggressive Fed,” she said. “The

swap market is now pricing for interest

rate rises this year, but Christopher

Waller [one of the Fed’s governors] last

week mentioned even the possibility of

five increases.” Spinozzi added that the

Fed could announce plans to end its

bond-buying as soon as next week.

“At this point,” she said, “it’s hard not

to envision the Fed to use balance sheet

runoffs to complement interest rates

hikes this year, a move that could help

to steepen the yield curve and hike less

than the market expects. From this

point of view, QE purchases are redun-

dant and the Fed might announce the

end of it already next week.”

Andrew Ticehurst, a rates strategist

at Nomura Holdings, said: “The big

theme in rates markets this year, partic-

ularly in the US, should be higher yields

and flatter curves, as US rate hikes get

underway.” He told Bloomberg: “His-

tory would suggest that ten-year yields

are unlikely to peak before the first rate

hike of the cycle.”

The Fed typically limits its increases

to 25 basis points per rise. The largest

recent rise was in May 2000, when the

central bank raised rates by half a point.

Arthi Nachiappan
Economics Correspondent

MUSEUM OF LONDON/HERITAGE IMAGES/GETTY IMAGES

A

ldi has

become the

latest

retailer to

open a

checkout-free store,

where customers can

pick up products and

leave without first

queueing at a till

(Simon Duke writes).

At the discount

grocer’s new site in

Greenwich, southeast

London, shoppers also

will be able to buy

alcohol, with facial

recognition

technology estimating

their age.

The German retailer

has grown rapidly over

the past decade; it now

operates from more

than 950 stores and

employs about 38,000

people in the UK.

Britain’s fifth largest

supermarket is

following the lead of

Amazon and Tesco,

which have opened

checkout-free outlets.

Customers receive an

emailed receipt for

any purchases.

Anyone wanting to

shop at the new site

must register first with

Aldi’s Shop&Go app.

In-store cameras

detect which products

customers have picked

up, before taking

payment from their

account as soon as

they leave.

Giles Hurley, Aldi

UK and Ireland chief

executive, said: “Today

is the culmination of

months of work.”

The move is the

latest adaptation by

Aldi to customers’

changing patterns of

consumption, brought

on by the pandemic. It

now sells groceries

through Deliveroo and

in 2020 launched a

click-and-collect

option for shoppers in

some of its stores.

Aldi takes

step into

till-free

shopping

The era of queues at

grocery tills is ending,

with Aldi joining the

much bigger Tesco and

Amazon in introducing

checkout-free stores

1.85%

Yield on ten-year Treasury securities

after investor sell-off yesterday

Source: US Department of the Treasury