In March 2021, OPEC revised its expectation for oil demand for the year to 96.27 Mbpd (from 96.05 mbpd), while OPEC+ maintained existing production cuts on the supply side at 7.2 million barrels per day.
The decision to maintain production cuts triggered a rally in oil prices, peaking at USD69.95 during the month and settling at USD64 at the end of the month (above the previous months and well above 2020 prices).
While we recognize that the higher oil prices contributed to an uptick in inflation in developed economies like the US (1.68%YoY) and UK (0.46%YoY) in February, we still expect inflation to remain below the 2% threshold in the near term.
In our view, the key risks to inflation would be the acceleration of vaccinations and the consequent reopening of economies. Nonetheless, we believe the suspension of the AstraZeneca vaccine in some European countries due to rising concerns about blood clotting diminishes the odds of hasty reopening of economies.
We also note the inflationary effects of the COVID-19 relief and asset purchase programmes embarked on by governments including the Quantitative Easing Program by the U.S Fed. and the Pandemic Emergency Purchase Program (PEPP) by the European Central Bank.