Secretary of Energy Jennifer Granholm had good and bad news. Only days before the Nov. 2 general election the secretary stated in an interview that gasoline pump prices would retreat from their unusually high levels by early December. After the polls closed came the bad news – average American home heating costs could increase by 50% over last year. This was later scaled back to 29%.
Since natural gas prices are indexed to crude oil expenses, the fault was said to be with “the global oil cartel,” which would include OPEC and Russia. Energy analysts are also blaming panic reactions to the COVID pandemic, producing what has been called “a plague bubble.” Twenty months ago, before the disease spread, gasoline cost $2.12 a gallon. Now it is $3.39 nationally, and $3.55 in Western Pennsylvania.
Crude oil, from which it is made, was $31 a barrel before the global stay-at-home lockdown drastically cut transport demand. On April 20, 2020, the one month ahead futures price of West Texas Intermediate – America’s benchmark crude – fell below zero on the New York Mercantile Exchange for the first time in history. It was a brief bottom, and the oil price went back above $20 for delivery in June. This was reminiscent of the end of 1998, when reduced demand because of the Asian currency crisis saw the world oil price fall under $10 a barrel on three occasions. This renewed calls for an energy price floor which would spare Mideast oil producers economic hardship, an idea that gained supporters in the diplomatic community.
According to the International Energy Agency in Paris, which advises governments, the natural gas price at the end of October was $5.88 per thousand cubic feet. This was the highest level in 13 years. Back then demand increased in the recovery from the 2008 financial crisis.
The reasons for the current boost are far from clear.
Partial recovery from the waves of the COVID lockdown is one of these. More travel has put the New York oil price over $80 a barrel for December. The dramatically volatile boost – from zero to 80 – in 18 months, must account for some of the growing inflation rate.
The Consumer Price Index went up 6.2% from last year at this time, the most in three decades.
Brett Ryan, a senior American economist for Germany’s Deutsche Bank, recently told an interviewer that the rises were set by energy companies to impose “capital discipline” on markets. The switch away from coal to cleaner burning natural gas may be another part of expensive energy. This is sometimes referred to as “decarbonizing the future.”
Wall Street had questions about paying for this, as well as concerns over the possible reaction to the COVID-19 and omicron variant’s reduction in travel and demand for fuel. This would weaken the world economy, and led to a 1,500 point fall in the Dow Jones Industrial Average between Nov. 26 and 30.
John Portella is a Pittsburgh-based freelance journalist who covers defense and energy issues. He earned an international relations doctorate at American University in Washington, D.C.