What's causing energy prices to spike?

Energy is ‘best sector’ to be in now: Market expert

Key Advisors Group, LLC co-owner Eddie Ghabour provides insight into energy stocks and cryptocurrencies. 

Energy prices are spiking around the world, with the cost of oil, natural gas and coal climbing rapidly in recent months, roiling markets and raising concerns about the broader effect on the global recovery from the pandemic. 

Oil prices surged again this week, with West Texas Intermediate (WTI) crude futures, the U.S. oil benchmark, topped $80 on Friday after OPEC and allied oil-producing countries decided to not boost production and instead stayed with their gradual approach to restore output reduced during the pandemic. 

The decision came amid stronger demand for oil products like gasoline and jet fuel as pandemic restrictions fade across the globe. 

By comparison, a barrel of WTI was worth about $40 in the year-ago period. 

ENERGY SECRETARY GRANHOLM TALKS SPR RELEASE

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

There are also unusually high natural gas prices in the U.K., Europe and Asia. The fuel shortages have led to panic-buying and have triggered blackouts and long lines at filling stations in China and Britain. (The U.S. is not unaffected by this; on Tuesday, natural gas futures settled at the highest level since 2008).

Experts blame a trifecta of climate change, supply constraints and meager investment returns for the rising prices.

"You combine all three factors and you get the perfect storm in global production that has resulted in a serious supply shock in the energy sector," " RSM US LLP chief economist Joe Brusuelas told FOX Business.  

WHITE HOUSE: NO ACTIONS PLANNED TO ADDRESS GAS PRICE SURGE

The highly contagious delta variant has driven a labor shortage around the global in general but specifically in the energy industry, leading to a decline in production that has exacerbated supply chain constraints.

On top of that, returns for investors in the energy industry have been meager in recent years with boom-bust cycles plaguing the sector. Just a little over one year ago, at the beginning of the pandemic, there were -$30-a-barrel oil prices – the result of crumbling demand.

"Investors who are obviously concerned about the supply shock have begun to reassess the efficacy of forward-looking energy," Brusuelas said. 

In the U.S., meanwhile, the industry is faced with the early stages of a long-term transition away from fossil fuels to renewable energy, driven in part by American consumers – faced with the threat of climate change, whether it's wildfires, hurricanes or flooding – are "demanding an evolution in energy," he said. 

Goldman Sachs analysts have predicted that oil prices could climb by $10 before the end of the year.  

CLICK HERE TO READ MORE ON FOX BUSINESS

That rising prices have elicited some reaction 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 setting prices and doing more to support the recovery," WhiteHouse press secretary Jen Psaki said last week.

The concern is that a surge in prices could have the potential to derail the U.S. economic recovery from the pandemic; after all, every dollar that consumers are spending on gasoline is a dollar they aren't spending shopping, eating out or traveling.  

But Brusuelas downplayed broader economic concerns: Unless oil prices rise to $125 or $135 a barrel, he said, they will not derail the expansion. 

"We have a long ways to go before we start to see the bottom within that context," he said. 

Source: Read Full Article