The summit between US President Donald Trump and Chinese President Xi Jinping on Thursday will be the most important scheduled event for energy markets, according to Rystad Energy Chief Economist Claudio Galimberti in a Monday note.
Either development could materially shift the supply calculus, Galimberti said in a market update, as the energy shock raises questions over whether inflationary pressures will begin to weigh more broadly on economic growth.
"The central bank moves this week are a rational response to an energy crisis that monetary policy cannot fix," Galimberti said. The Federal Reserve, European Central Bank and Bank of Japan are signaling they will not let energy-driven inflation become embedded in wages and prices.
But raising rates adds a second restraint on growth through higher borrowing costs, bond yields and eventually weaker corporate earnings and household demand, he said.
"Brent at $100 and diesel at $6.50 a gallon are already squeezing consumers," Galimberti said. "The key question now is whether this energy shock remains primarily inflationary or starts tipping into something that resembles a slowdown."