Daily Update: October 4, 2021

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

Key economies in the Middle East and Africa are confronting the continuing economic impacts of the coronavirus crisis in tandem with demand and price pressures across the oil market. While emerging economies across the Middle East and Africa “have surprised again with stronger-than-expected growth numbers, primarily stemming from higher consumption and exports … most economies in the region are still short of the widespread immunity level of 70%-80%, with wide differences across economies,” according to S&P Global Ratings. “A key downside risk to the growth forecast remains insufficient progress in COVID-19 vaccination, which makes the countries vulnerable to future pandemic waves … Vaccination rollout in the Middle East and North Africa region has picked up, with some countries, such as the United Arab Emirates and Qatar, achieving vaccination rates of 70% and higher. Most North African countries, with exception of Morocco (45%), are still lagging.” Against this backdrop, Middle Eastern and North African oil and gas industries have gone on the offensive against the energy transition and rallied for new investment to revive and boost energy output as oil prices surge. S&P Global Platts Analytics anticipates that the benchmark oil price might spike this month before settling at approximately $70 per barrel, with more market risks arising from supply-chain constraints, inflation trajectories, geopolitics, and central bank policies. After experiencing its worst contraction since 1987 during the depths of the downturn last year, Saudi Arabia’s economy is likely to rebound in 2020 on the back of higher oil prices, according to S&P Global Ratings. The Arab world’s largest economy is expected to average growth of 2.4% between 2021 and 2024. "In 2021, the country's economy has begun to rebound, as the global economy emerges from the pandemic and oil prices have improved, although these trends remain partially counterbalanced by Saudi Arabia and OPEC constraining oil production," S&P Global Ratings said. “Alongside its large production capacity and its leadership role in the global OPEC and oil markets, this [spare capacity] provides it with some supply-side pricing power and fiscal flexibility that is not available to other oil producers, helping its fiscal and growth strategies.” South Africa is likely to experience larger growth this year, as S&P Global Ratings now expects the economy to expand by 4.6% in 2021 from its previous forecast from June of 4.2%. So far this year, the country’s capital market has recorded remarkable returns, according to S&P Dow Jones Indices. The S&P South Africa 50 grew by 13.7% and 27.8%, respectively, for the six-month and one-year investment horizons. Broadly, the outlooks for inflation and credit conditions remain a concern for some Middle Eastern and African economies, as capital often flows from emerging markets when monetary policies in advanced countries start to normalize. “We could see elevated balance-of-payment risks for Egypt if there were a sharp withdrawal of funds while current account receipts remained weak owing to pandemic-related damage to tourism and export receipts. This could result in a substantial decline in foreign exchange reserves and reduce Egypt's ability to service its debt,” S&P Global Ratings said in a report on rising interest rates in Egypt. “Even-larger primary surpluses, higher and broader economic growth, and a gradual shift in the external funding mix from debt toward equity flows would allow Egypt to reduce real interest rates while maintaining sufficient capital inflows to meet investment needs.” Some operating conditions in the region have changed this year. In the second quarter, the total transaction value of mergers and acquisitions activity in the Middle East and Africa declined quarter-over-quarter by 38%, with transaction volume increasing 74%, according to S&P Global Market Intelligence data. Today is Monday, October 4, 2021, and here is today’s essential intelligence.

Market Dynamics

Lithium And Cobalt CBS September 2021 — Lithium Price Surges, Cobalt Range-Bound

In August, the lithium carbonate CIF Asia price reached a 27-month high of $12,250 per tonne, buoyed by strong Chinese battery production and plug-in electric vehicle sales in August and weak seaborne supply. Cobalt prices remain range-bound between $22.72 per pound and $24.04 per pound in the month to Sept. 20 from the interplay between supply delays and weak demand growth.

—Read the full article from S&P Global Market Intelligence

Technology & Media

Tech, Telecom Deal Values Blow Past Record $1 Trillion In Bustling 2021

Tech and telecom M&A values crested a new high-water mark as the third quarter ended, with some advisors cashing in on the boom in activity. The industry saw about $1 trillion worth of deals announced in the first nine months of the year, the highest total of any prior three-quarter or full-year period, according to 451 Research. 

—Read the full article from S&P Global Market Intelligence

ESG in the Time of COVID-19

COP26 Could Be ‘Last Best Chance’ To Combat Climate Change

The upcoming 26th U.N. Climate Change Conference in Glasgow, known as COP26, will mark five years since much of the world signed the Paris Agreement and set historic carbon reduction targets. But those targets were still too low to put the world on a path to limiting global temperature rise to 1.5 degrees C below preindustrial levels, the target scientists say must be hit to avoid the worst-case climate change scenario. 

—Read the full article from S&P Global Sustainable1

Analysis: China Power Shortages Provide Lessons For Sector Reforms In Climate Push

The ongoing power crisis in China provides key lessons for sector reforms to overhaul the electricity system, build a new grid based on renewables and decarbonization, and ensure stable energy transition amid shifting priorities, Chinese experts said at the launch event of International Energy Agency's report on a carbon neutrality roadmap for the country's energy sector.

—Read the full article from S&P Global Platts

U.S. House Yet To Broker Deal To Advance Bills Seen As Key To Biden's Climate Agenda

As of the afternoon of Sept. 30, Democrats were struggling to meet their target for a House vote on a $1 trillion bipartisan infrastructure bill as the wrangling continued. Moderates were holding to their objections about the $3.5 trillion price tag of the budget reconciliation package.

—Read the full article from S&P Global Platts

Slow Farmer Selling, La Niña Likely To Hurt South American Soybean Exports In 2021-22: Sources

Brazil's cereal exporters association ANEC on Sept. 28 pegged 2021 soybean exports at 79 million mt, compared with 82.3 million mt in 2020. For September, ANEC expects exports to drop 18.2% month on month to 4.7 million mt.

—Read the full article from S&P Global Platts

The Future of Energy & Commodities

Oil, Gas Drillers See Renewed Investor Interest As Pipelines Fallout Of Favor

The North American oil and gas exploration and production sector is gaining more investment dollars at the expense of pipeline operators as drillers substantially improve free cash flow and debt reduction, according to industry experts.

—Read the full article from S&P Global Market Intelligence

Brazil's Appetite For U.S. LNG Grows In Third Quarter As Prices Help Alter Trade Flows

As of early afternoon Sept. 30, Brazil had received 32 U.S. LNG cargoes during the third quarter, matching its total for all of 2020, according to Platts Analytics. China and South Korea were tied for second among top destinations for US cargoes, with 19 apiece, followed by Japan with 11. 

—Read the full article from S&P Global Platts

Feature: Cautious OPEC+ Deliberates Output Levels, As U.S., China Seek More Oil On The Market

In the month since OPEC and its allies last met, oil prices have hit three-year highs, flirting with $80/b and bringing renewed pressure from the White House to tame the rally. The OPEC+ alliance is already scheduled to raise output by 400,000 b/d each month, but ministers may have ample reason to consider pumping beyond those limits when they convene Oct. 4.

—Read the full article from S&P Global Platts

Market Awaiting Constitutional Reform To Mexican Power Market

Market participants and observers in Mexico are awaiting the presentation of a constitutional reform that could curb the participation of private companies in the country's power market and increase the dominance of state utility CFE. The reform is expected to be the first of three major constitutional amendments planned by the president before the end of his term in 2024.

—Read the full article from S&P Global Platts

Quarterly: West Of Suez - Freight Rates Seen Strengthening In Fourth Quarter

Although dirty tanker freight rates were steady through most of the third quarter, towards the end of September they started to increase. VLCC rates reached $12.66/mt on the West Africa-to-East 260,000 mt run, the highest figure recorded so far in 2021, supported by a strong U.S. Gulf and East Coast Mexico market.

—Read the full article from S&P Global Platts

Listen: APPEC Puts Spotlight On Asia's Energy Future And Surging Oil, Gas Prices

In a wide-ranging discussion with Asia Energy Editor Sambit Mohanty, Global Head of Pricing and Market Insight Dave Ernsberger and Head of Global Demand and Asia Analytics Dr. Kang Wu share their views on the changing narrative for the oil market, the impact of energy transition on Asia's energy basket, the future of refining, and the road to demand and price recovery.

—Listen and subscribe to Oil Markets, a podcast from S&P Global Platts

Written and compiled by Molly Mintz.