What causes energy prices to rise?
energy Prices are rising around the world, with the cost of oil, natural gas and coal rising rapidly in recent months, upsetting markets and raising concerns about the broader impact on the global recovery from the pandemic.
Oil prices rose again this week, with West Texas Intermediate (WTI) crude futures above $80 on Friday after OPEC and allied oil-producing countries decided not to increase production and instead stick to their gradual approach to restoring low production. during the pandemic.
The decision came amid stronger demand for petroleum products such as gasoline and jet fuel as pandemic restrictions ease around the world.
By comparison, the price of a barrel of West Texas Intermediate crude was about $40 in the same period last year.
In the wake of the oil boom, gas has been more expensive for millions of Americans: On Wednesday, the national average price for a gallon of gas was $3.22, According to AAA The highest rate since October 2014.
There is also an unusually high price for natural gas in the UK, Europe and Asia. Fuel shortages have led to panic buying, causing blackouts and long queues at gas stations in China and Britain. (The US has not been affected by this; natural gas futures settled on Tuesday at their highest level since 2008.)
Experts blame a trio of climate change, supply constraints and meager investment returns for higher prices.
“Combine the three factors and you get the perfect storm in global production that has led to a serious supply shock in the energy sector,” RSM US LLP chief economist Joe Brusuelas told FOX Business.
The highly contagious delta variant has resulted in labor shortages around the world in general but particularly in the energy industry, resulting in reduced production that exacerbated supply chain constraints.
Moreover, returns for investors in the energy industry have been meager in recent years with boom and bust cycles that have plagued the sector. A little more than a year ago, at the beginning of the epidemic, there were – prices of $ 30 a barrel of oil – as a result of the collapse in demand.
“Investors clearly concerned about the supply shock are beginning to reassess the effectiveness of forward-looking energy,” Brusolas said.
Meanwhile, US industry faces the early stages of a long-range transition away from fossil fuels to renewable energy, driven in part by American consumers – facing the threat of climate change, whether it’s from wildfires, hurricanes or floods. – “They demand an evolution in energy,” he said.
Goldman Sachs analysts predicted that oil prices could rise by $10 before the end of the year.
The price hike triggered some reactions from the Biden administration, which urged OPEC to produce more oil.
“We continue to talk to international partners, including OPEC, about the importance of competitive markets, setting prices, and doing more to support recovery,” White House press secretary Jen Psaki said last week.
The concern is that higher prices could hamper the US economic recovery from the pandemic; After all, every dollar consumers spend on gasoline is a dollar they don’t spend shopping, dining out, or traveling.
But Brosolas downplayed the broader economic concerns: Unless oil prices rise to $125 or $135 a barrel, he said, they won’t derail expansion.
“We have a long way to go before we start seeing the bottom in this context,” he said.