What’s causing energy prices to spike?

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Experts play down economic impact of rising energy prices

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Energy prices are rising around the world, the cost of oil, natural gas and coal have risen sharply in recent months, markets are bustling and concerns are rising about the broader impact the pandemic will have on the global recovery.

Oil prices jumped again this week, with West Texas Intermediate (WTI) crude futures, the US oil benchmark, above $80 on Friday after OPEC and allied oil-producing countries decided not to boost production. Gaya and instead remained with his gradual approach to restoring production. during the pandemic.

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The decision came amid strong demand for oil products such as gasoline and jet fuel as pandemic restrictions across the world.

By comparison, a barrel of WTI cost around $40 in the year-ago period.

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On the heels of the oil rebound has been the more expensive gas for millions of Americans: On Wednesday, the national average price for a gallon of gas was $3.22, according to AAA – Highest rate since October 2014.

The UK, Europe and Asia also have unusually high natural gas prices. Fuel shortages have triggered panic and led to blackouts and long lines at filling stations in China and the UK. (The US is not unaffected; natural gas futures closed Tuesday at their highest level since 2008).

Experts attribute the rising prices to climate change, lack of supply and low investment returns.

“You combine all three factors and you get the perfect storm in global production resulting in a severe supply shock in the energy sector,” Joe Brusuelas, chief economist at RSM US LLP, told Granthshala Business.

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The highly contagious delta variant has led to labor shortages globally but in particular in the energy industry, leading to a decline in production that has exacerbated supply chain bottlenecks.

On top of this, returns for investors in the energy industry have been low in recent years, with the sector experiencing a rapid boom cycle. A year ago, at the start of the pandemic, oil prices were at $30 a barrel – the result of falling demand.

“Investors who are clearly concerned about supply shocks have begun to re-evaluate the efficacy of forward-looking energy,” Brusuelas said.

In the US, meanwhile, the industry is facing the early stages of a long-term transition from fossil fuels to renewables, driven by US consumers – facing the threat of climate change, whether it is wildfires, Be it hurricanes or floods – “there are demands for growth in energy,” he said.

Analysts at Goldman Sachs have predicted that oil prices could climb up to $10 before the end of the year.

That rising prices have drawn some backlash from the Biden administration, which has urged OPEC to produce more oil.

“We continue to speak to international partners, including OPEC, on the importance of competitive markets and to determine prices and support the recovery,” Whitehouse Press Secretary Jen Psaki said last week.

Worryingly, a price jump has the potential to derail the US economic recovery from the pandemic; After all, every dollar that consumers are spending on gasoline is a dollar they are not spending on shopping, eating or traveling.

But Brusuelas downplayed macroeconomic concerns: Unless oil prices rise to $125, or $135 a barrel, he said, he won’t derail expansion.

“We have a long way to go before we start looking down in that context,” he said.


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