NEW YORK: A surge in energy and metal prices is offering investors a fresh reminder of how the commodities market can fuel inflation and imperil the post-pandemic economic recovery.

The West Texas Intermediate crude price settled above US$80 a barrel for the first time since 2014 while aluminium futures rose to their highest since July 2008, leading broad gains among base metals.

In China, coal futures surged to a record.

Escalating concerns about tight fossil fuel supplies as the winter approaches in the Northern Hemisphere has led to a surge in the price of natural gas, coal and oil globally, rattling power generators and other end-users such as fertiliser producers.

Meanwhile, a deepening power crisis is squeezing supplies of aluminium, an energy-intensive metal.

That comes at a time when the cost of consumer goods is already under pressure from port bottlenecks, supply chain disruptions and labour shortages.

“It’s really the main theme that’s concerning everybody, the supply chain shortages exacerbated recently by the energy shortages, the energy price spikes,” said Ed Meir, an analyst at ED&F Man Capital Markets.

“The inflation theme is very much with us, contrary to what the central banks are saying - it’s becoming very entrenched.”

The rally in oil has spurred the Biden administration to become more vocal about its growing concerns over high energy prices.

Over the past few months, the White House has been in communication with the Organisation of the Petroleum Exporting Countries (Opec), pushing the cartel to boost output while stressing the importance of affordable energy.

After the group decided last week to continue with a gradual increase in production, United States energy secretary Jennifer Granholm raised the prospect of releasing crude from the country’s strategic petroleum reserve.

It’s only a matter of time before the US government starts lobbying more publicly for Opec member states to pump more, oil historian Daniel Yergin said in a Bloomberg Television interview.

“The key to remember is that the Biden administration is very keen on having low gasoline prices for consumers,” Amrita Sen, chief oil analyst at Energy Aspects Ltd, said in a Bloomberg Television interview last week.

“So if prices continue to go up and overheat, then they will be putting pressure on Opec.”

The Bloomberg Commodity Spot Index, which tracks 23 energy, metals and crop futures contracts, rose 0.2% on Monday after hitting an all-time-high last week.

The reopening of major economies has unleashed pent-up demand for transportation fuel and all commodities used in manufacturing, just as new mining and oil developments have stalled, China is replenishing crop stockpiles and bad weather is hurting top exporters of agricultural goods.

Iron ore, which tumbled after hitting a record in May, has posted dramatic gains, with futures contracts climbing 50% in just three weeks on expectations that some idled Chinese steelmakers will resume operations.

China’s power shortage is likely to persist into winter and lead the country into a short period of stagflation, with elevated producer-price inflation and growth pressures, analysts said. It may also export inflation as the disruptions ripple through global supply chains.

Providing some relief, prices for some agricultural commodities such as soybean have fallen amid an improved supply outlook.

 - Bloomberg