It’s getting more expensive to gas up your car, and that’s just the tip of the iceberg. Energy industry analysts and supply chain experts warn that households will feel the pinch of higher energy prices in their household budgets in the coming months.
Oil prices continued their upward trek on Monday, crossing the $80 mark as cascading energy crises in China and parts of Europe raised the prospects of higher fuel costs through the winter. The average price for a gallon of regular gas was $3.27 on Monday, according to the AAA, a jump of seven cents in just a week.
“We're forecasting the average gasoline price goes to $3.50, just based on what’s happened over the last couple of weeks,” said Jay Hatfield, CEO and portfolio manager at Infrastructure Capital Advisors. “Prices are definitely headed higher.”
“It's kind of a stealth tax on consumers."
Tom Kloza, global head of energy analysis for OPIS by IHSMarkit, said “every nook and cranny of the economy” could be affected. “Everything that moves tends to move cross-country by truck or by train, so we’re looking at a more expensive year for that,” he said.
“With the price of oil rising, [it] has multiple fall-on effects. It’s the basis for all transportation costs. Jet fuel is the primary factor impacting air freight, as well as ticket prices for travel,” said Rob Handfield, professor of supply chain management and director of the Supply Chain Resource Cooperative at North Carolina State University. “It also impacts the trucking industry as gas prices rise, so whenever you get an increase in logistics costs, you get fuel surcharges,” he said.
This means more than just pain at the pump, though. Businesses already paying more for supplies, raw materials and labor have already seen their margins squeezed. Stewart Glickman, energy equity analyst at CFRA Research, said higher fuel costs will inevitably get passed on in the form of higher prices.
“It's kind of a stealth tax on consumers,” he said.
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People will also feel the impact in the form of higher utility bills this winter, Kloza said, predicting that the price of natural gas — the source of about one-third of the nation’s electricity — could potentially double. “I think heating bills are going to be quite high this winter. If it’s warmer than normal, great. If it's not, we're going to see some pretty high prices, and you could see some parabolic rises for natural gas and heating oil and diesel fuel,” he said.
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“The unfortunate thing for consumers is… people are going to have to turn down their thermostats,” Hatfield said. “This is going to become a huge problem during the winter, and that's assuming things don't get worse.”
In Europe, natural gas prices have skyrocketed. If the price of oil were equivalent, Hatfield said, it would be $240 per barrel — roughly triple its current price. “In the U.S., natural gas is still relatively cheap, so there's tremendous pressure on our natural gas prices to go higher,” he said.
Higher costs for growing crops or animal feed could be passed through to consumers in the form of higher food prices.
Fossil fuels and their byproducts are much more deeply ingrained into the fabric of the economy — and of our everyday consumption habits — than most people realize. “There is a trickle-down effect of oil prices rising and all the other industries impacted by it,” Handfield said.
Food prices could be facing a triple-whammy of inflationary pressures, experts say: In addition to greater expenses incurred getting goods shipped to stores, agriculture relies on fossil fuels for fertilizer production, which means that higher costs for growing crops or animal feed could be passed through to consumers in the form of higher food prices.
And then there’s packaging: Plastic pellets called resins that are the core component of many types of plastic bags, films and other packaging materials are derived from petroleum. Production of these materials were already constrained by last winter’s deep freeze in Texas, which had been driving up prices.
“It's what I would call the perfect storm,” Handfield said. “I don't think we’re going to see any relief until 2023. This is not a short-term disruption — this is a problematic issue that’s not going to go away for a while.”
