Americans struggling with unprecedented inflation levels are finally receiving help where they are most needed: electricity costs that were formerly skyrocketing.
Prices at the pump are declining after an unrelenting increase. According to AAA, the national average price for a gallon of normal gas dropped to $3.35 on Tuesday, a seven-week low.
The forecast for wintertime home heating expenses is also notably improving. Over the previous two months, natural gas futures have practically been reduced in half. On its worst day in almost three years, natural gas prices fell by more than 11% on Monday.
Energy & Environment —getting Gas Prices Down May Finally Be PossibleOne of the main causes of inflation reaching its highest level in 31 years has been energy price shock. If they persist, falling energy costs might relieve the US economy of major inflationary pressure and bolster the confidence of disgruntled consumers.
Regarding the collapse in natural gas futures, Robert Yawger, director of energy futures at Mizuho Securities, said: “This is going to help consumers tremendously.”
Prices at the pump began to stabilize as speculations of an energy market intervention by the Biden administration circulated.
In a synchronized release with other nations, President Joe Biden announced the largest-ever release from the Strategic Petroleum Reserve on November 23. By that point, oil prices had fallen by about 10% from their peak. Even if it is believed that Biden’s decision to use the SPR is more of a temporary fix than a long-term fix, this is still the case.
Gas prices, which lag behind other commodities, eventually started to decline. The cost of fuel is still very high, yes. Gas for regular vehicles currently costs $3.35 per gallon, up from $2.16 a year ago. But at last, they are no longer climbing straight up.
Low Pricing Is Praised by The White House
The White House applauds the change in the course following months of criticism for high inflation and high energy prices in particular.
“Price drops at the pump are welcome news, in our opinion. This is at least partially a result of the President’s actions, as we have taken audacious steps to expand supply and lower prices “CNN reported on Tuesday that a person familiar with the White House’s thinking.
Last week, Biden voiced optimism that gas prices will decline.
“Americans are starting to benefit from these savings, and in the coming weeks, they should increase. It also cannot proceed quickly enough “added Biden on Friday.
Of course, US-led market intervention in the energy sector is just one aspect of this.
The second section is more concerning: Oil prices plummeted after the Omicron coronavirus variety emerged, raising concerns about a possible decline in demand for gasoline, jet fuel, and diesel. On Black Friday, crude prices fell by the highest since April 2020.
As Wall Street responds to anecdotal data that says Omicron symptoms have been moderate, oil prices have recently recovered along with the stock market.
Tuesday saw a crude price increase of almost 5% to $72.80 a barrel. The fact that it is now up 10% from Friday suggests that the relief at the pump might only last a short time.
Natural Gas Prices Plummet
Natural gas, on the other hand, is still significantly up on the year, but it has just started to decline significantly.
Natural gas hit $6.47 per million British thermal units in early October as concerns over a European-style scarcity grew. Since February 2014, that was the highest level.
But that upswing has completely turned around. To $3.66 per million BTU, natural gas plummeted 11.5 percent on Monday, its worst day since January 2019. Since July 15, that is the lowest level.
The United States has had warmer-than-normal temperatures, which has contributed to natural gas prices falling. This has reduced the demand for natural gas, which is used most frequently to heat homes.
Christopher Looney, vice president of global commodity strategy at RBC Capital Markets, said that the warmer-than-average start to winter had allayed fears.
Exaggerated Shortage Worries
The rise in natural gas inventories has also contributed to rising temperatures, allaying concerns that storage levels would fall to dangerously low levels.
“There won’t be a natural gas shortage in the US. There is plenty available, “Rob Thummel, senior portfolio manager at energy investment firm TortoiseEcofin, said. We have enough supplies to last through a really severe cold spell.
Natural gas shortage worries were exaggerated, especially in light of the fact that the United States is the world’s top gas producer. Additionally, a slight increase in natural gas production has helped to drive down costs even more.
An industry trade group, the American Gas Association, told CNN that “we are seeing the response of an efficient natural gas market to prices that were viewed as inordinately high.”
Unlike Europe, the United States has sufficient domestic natural gas production to export sizable amounts of LNG, or liquefied natural gas, every day to foreign countries.
The natural gas market is now more concerned about an excess of supply than a shortfall if anything.
Market spreads on futures are “a signal that a surplus is coming our way. It’s a serious issue, “said Yawger of Mizuho.
Of course, it’s too early to give the home heating front the all-clear signal. Even though winter has not yet officially arrived, extremely cold temperatures in the upcoming weeks and months may cause natural gas futures to rise.
But for the being, the energy market is giving families in America who are weary of inflation a glimpse of optimism.
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