Prices Going to $10 a Gallon? NOT!
Only 90 days ago, the level of hysteria surrounding the issue of inflation was overwhelming. The Number One concern at that time was the price of gasoline, which had topped $5.00 a gallon and more than a few esteemed Wall Streeters said “You ain’t seen nothin’ yet”.
Surprise, surprise, the numbers then did an about-face and by late August, the national average price of gas had dropped below $3.90 a gallon. Some of that pullback was probably attributable to releases from the Strategic Petroleum Reserve, which had been targeted at one million barrels per day since last Spring.
But the greater impact was from an across-the-board reduction in crude oil prices this year. West Texas Intermediate, one of the best-known standard measures, peaked at $120.93 a barrel on June 13th, only to drop 25% 10 weeks later. Clearly, this is not just about tapping U.S. reserves to ease price pressures.
According to the U.S. Energy Information Administration, the world’s production and consumption of liquid fuels is approximately in balance at the moment and likely to remain so next year. This may be encouraging, but there will be exceptions.
If this forecast proves out, most petroleum products will have a further easing in prices over the year ahead. Natural gas, however, may have an additional rise, and impact electrical producers dependent on that fuel. What is becoming increasingly important is sourcing from renewables such as solar and wind, which accounted for 20% of electrical generation last year and may rise to 24% in 2023.
All of this will be subject to uncertainty resulting from the conflict in Ukraine, the supply of fuel from Russia, increases in U.S. oil and natural gas production, and ongoing economic changes both here and abroad.
Bottom line: Electricity will become slightly more expensive, primarily due to the increased cost of natural gas, but a trip to the gas station will not require completion of financial statements before filling your tank.
N. Russell Wayne, CFP®
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