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October 11, 2021

Soaring energy prices are raising a lot of concerns in all markets riding on growing economic activities in so many countries. Crude oil has risen over 64% this year to a seven-year high topping $82 per barrel as of Monday, October 11, 2021. 

Other energy sources are equally on the uptrend with natural-gas prices have roughly doubled over the past six months to a seven-year high and heating oil rising 68% this year. Prices at the US pumps are up nearly a dollar over the past 12 months to a national average of just over $3 a gallon. Coal prices are at a record.

Higher energy prices have serious implications for inflation in an economy, particularly non-oil-producing economies. High energy prices will amplify the prices of goods and services. It will significantly impact the capacity of consumers to purchase. Should the energy prices continue to increase, it will squeeze consumers' finances and decelerate the economic recoveries taking place in many economies.

Causes of Energy Shortages
The higher prices are being driven by rising demand and tight supplies. As the pandemic fades and consumers around the world step up spending, factories and service providers are ramping up production, which requires more energy. Restricted supply of oil by OPEC and Non-OPEC members have also affected the pump price of oil.

Natural-gas supplies have been affected by freezes in Texas while Hurricane Ida also pushed almost all of the Gulf of Mexico’s gas output offline. The situation was further aggravated by reduced supplies from Russian gas fields, reduced inventories in Europe where demand has spiked. There is a herd effect that has also impacted on prices of coal which has also seen a rise in demand despite previous plans to cut its production in line with global emission reduction plans.

What the experts are saying?
Moody’s Analytics projects oil will rise to between $80 and $90 a barrel by early next year from $79 now and natural-gas prices to $6.50 to $7 per million British thermal units, from $5.5650.

JPMorgan Chase & Co. gives a worst-case scenario of oil rising for the next three years and reaching $190 a barrel in 2025. Electricity prices rose 5.2% in August from a year earlier, the largest gain since early 2014, according to the Labor Department

Analyst View
The increasing energy cost will be sustained in view of the following factors; Investors are still nervous about fast depleting stockpiles, there is no significant increase in  OPEC production quotas to producers, the winter season is here with us, and demand for energy is always on the rise. More countries are exiting the lockdown mode which means there will be more productive activities which will further increase demand for more energy.

This development calls for more energy consumption and in view of the fact that renewable energy sources are not yet available on an industrial scale, the alternatives to turn to will be fossil fuel sources which will further depreciate the climate change credentials of the ecosystem.