Gas prices skyrocket as global energy crisis deepens

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Demand for energy is back today as the global economy reopens, but supply has simply not kept up. This is why US oil prices have climbed $ 120 since falling below $ 40 per barrel in April 2020. US oil prices finished above $ 80 per barrel on Monday for the first time. times in almost seven years.

Crude gained 1.5% to end the day at $ 80.52. The last time oil closed above $ 80 was October 31, 2014.

All of this leads to sticker shock for many Americans refueling at the pump – at a time of year when gasoline prices are typically cooling down. The national average price of gasoline hit a new seven-year high of $ 3.27 per gallon on Monday, up 7 cents in the last week alone, according to AAA. Gas has almost doubled from the low of $ 1.77 in April 2020.

High gas prices will only exacerbate high inflation, squeeze the budgets of American families and hurt President Joe Biden’s political fortunes.

Unfortunately, prices at the pump could rise even more due to the global energy crisis.

Natural gas prices have skyrocketed so much, especially in Europe and Asia, that power plants and factories can increasingly turn to a relatively cheaper fuel source for electricity: crude oil.

â€œIt’s just about trying to keep the lights on,â€ said Matt Smith, Kpler’s chief oil analyst for the Americas. “It essentially creates a demand that is usually not there”,

$ 100 worth of oil in the cards?

Citigroup on Monday raised its Brent oil forecast to $ 85 a barrel for the fourth quarter on Monday and said crude would likely hit $ 90 at times. The Bank of Wall Street spoke of a “price contagion this winter” and the expected switch of power plants from natural gas to oil.

Citi added that a “very cold winter” could see Europe “running out of gas” by February.

Oil has been around for a long time as a potential substitute for natural gas – except until recently it made no financial sense. This is because for much of the past twelve years natural gas prices have been very low, making the switch to oil unprofitable.

But in Europe, natural gas prices fell from less than $ 2 per million BTUs last year to $ 55 this fall. That’s the equivalent of $ 320 per barrel of oil.

Bank of America has warned that a cold winter could increase demand for oil by half a million barrels a day, raising Brent crude to $ 100 a barrel. This in turn would cause a bigger shock to American drivers, as gasoline prices are calculated on Brent crude.

“We may only be one storm away from the next macro-hurricane,” Bank of America strategists wrote in a recent note to clients.

Record coal price in China

It’s not just high natural gas prices that play a role here.

Chinese coal prices have reached record highs amid floods in northern China that have forced dozens of coal mines to close. Coal remains the main source of energy in China, used for heating, power generation and the steel industry. China is now grappling with power shortages, which has prompted the government to ration electricity during peak hours and some countries to halt production.

The United Arab Emirates becomes the first Gulf state to commit to net zero. The oil will still flow

Against this backdrop, gasoline prices have soared higher and higher in the United States, adding to inflationary pressures weighing on the economy.

Patrick De Haan, head of petroleum analysis at GasBuddy, said nationwide gas prices of $ 3.30 were likely just around the corner.

â€œLooking on the horizon, I really don’t see any organized price drop,â€ De Haan said. “The market is starting to feel explosive. The fundamentals are there to keep this going.”

OPEC at the helm

While demand is strong, oil supplies have simply not kept pace.

U.S. oil production has been slow to rebound after Covid, even as prices have skyrocketed. Many US oil companies are wary of any new oversupply in the market, and they are much more focused on returning money to shareholders who have lost masses of money over the past decade.

Despite calls from the White House to OPEC and its allies to significantly increase production, the group has only gradually increased production shelved in early 2020. For now, they seem to be content to leave oil prices remain high.

â€œThey’ve always been the producers of swing,â€ Kpler’s Smith said, â€œbut my God, they sure hold the power right now.â€

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