STREAMING NOW: Watch Now
CLOSINGS: View Closings

Gas prices skyrocket as the global energy crisis worsens

Ben Hasty/MediaNews Group/Reading Eagle via Getty Images

The cost of energy was dirt cheap in the spring of 2020 as roads and airports sat nearly empty during the height of the Covid-19 pandemic.

Posted: Oct 11, 2021 3:32 PM
Updated: Oct 11, 2021 3:34 PM

The cost of energy was dirt cheap in the spring of 2020 as roads and airports sat nearly empty during the height of the Covid-19 pandemic.

Energy demand is back today as the world economy reopens -- but supply simply hasn't kept up. That's why US oil prices have skyrocketed $120 since crashing to negative $40 a barrel in April 2020. US oil prices finished above $80 a barrel on Monday for the first time in nearly 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 is leading to sticker shock for many Americans filling up at the pump -- at a time of the year when gas prices typically cool off. The national average price for gasoline hit a fresh seven-year high of $3.27 a gallon on Monday, up by 7 cents in the past week alone, according to AAA. Gas has nearly doubled since bottoming at $1.77 in April 2020.

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

Unfortunately, prices at the pump may get lifted even higher by the global energy crisis.

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

"It's a case of just trying to keep the lights on," said Matt Smith, Kpler's lead oil analyst for the Americas. "This is essentially creating demand that typically isn't there,"

$100 oil in the cards?

Citigroup on Monday ramped up its Brent oil forecast to $85 a barrel for the fourth quarter and said crude will likely hit $90 at times. The Wall Street bank cited "price contagion this winter" and the expected switching of power plants away from sky-high natural gas to oil.

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

Oil has long been there as a potential substitute for natural gas -- except until recently, it didn't make any financial sense. That's because for much of the past dozen years, natural gas prices have been very low, making switching to oil uneconomical.

But in Europe, natural gas prices have gone from below $2 per million BTU last year to as much as $55 this fall. That is the equivalent of $320 a barrel oil.

Bank of America has warned that a cold winter could boost oil demand by half a million barrels per day, lifting Brent crude to $100 a barrel. That in turn would cause more sticker shock for American drivers because gas prices are priced off Brent crude.

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

Record coal prices in China

It's not just high natural gas prices that are playing a role here.

Chinese coal prices have hit record highs amid flooding in northern China that forced the closure of dozens of coal mines. Coal remains the main source of energy in China, used for heating, power generation and steelmaking. China is now grappling with power shortages, prompting the government to ration electricity during peak hours and some countries to suspend production.

Against this backdrop, gasoline prices have crept higher and higher in the United States -- adding to inflationary pressures gripping the economy.

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

"Looking out on the horizon, I really don't see an organized drop in prices," said De Haan. "The market is starting to feel explosive. The fundamentals are there for that to continue."

OPEC in the driver's seat

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

US oil production has been slow to rebound from Covid -- even as prices have surged. Many US oil companies are leery of once again oversupplying the market and they are far more focused on returning cash to shareholders who have lost gobs of money over the past decade.

Despite the White House's calls for OPEC and its allies to significantly ramp up production, the group has only gradually increased output sidelined in early 2020. For now, they seem content to let oil prices remain elevated.

"They have always been the swing producer," said Kpler's Smith, "but my gosh they certainly hold the power right now."

The-CNN-Wire
™ & © 2021 Cable News Network, Inc., a WarnerMedia Company. All rights reserved.

New York Coronavirus Cases

County data is updated nightly.

Cases: 2738968

Reported Deaths: 57593
CountyCasesDeaths
Kings35054010976
Queens32740410420
Suffolk2563293692
Nassau2267643335
Bronx2135936810
New York1771674667
Westchester1484542356
Erie1256852060
Monroe982241256
Richmond929811973
Orange62410944
Onondaga59728818
Rockland55617783
Dutchess38083510
Albany34583414
Oneida33390646
Niagara28947419
Broome28368435
Saratoga24878227
Schenectady19437245
Ulster19155292
Rensselaer17502193
Chautauqua15116197
Oswego14282135
Putnam13194101
St. Lawrence12945143
Chemung12916175
Steuben12556191
Ontario11776119
Jefferson11484106
Wayne10346103
Cattaraugus10082159
Cayuga9787113
Sullivan966390
Genesee8711144
Herkimer8394143
Clinton814648
Fulton7890115
Tompkins743161
Madison7412109
Warren737496
Livingston726377
Montgomery7246162
Washington675580
Tioga641373
Cortland611389
Allegany6028122
Columbia5753113
Chenango558796
Orleans556896
Franklin545126
Otsego541163
Wyoming535667
Greene496289
Delaware444352
Lewis424040
Seneca329368
Essex300538
Schoharie272324
Yates200434
Schuyler195420
Hamilton5163
Unassigned1402
Out of NY0340
Utica
Cloudy
38° wxIcon
Hi: 45° Lo: 32°
Feels Like: 34°
Oneonta
Cloudy
39° wxIcon
Hi: 45° Lo: 31°
Feels Like: 34°
Herkimer
Cloudy
38° wxIcon
Hi: 47° Lo: 32°
Feels Like: 34°
Old Forge
Cloudy
38° wxIcon
Hi: 40° Lo: 28°
Feels Like: 34°
WKTV Radar
WKTV Temperatures
WKTV Severe Weather
2022 WKTV Golf Card only $99.99
Game Day Deals - New Deals Each Week
Stuff the Bus Locations
Saluting Those Who Are Proud 2 Serve