Economic Forecasts

Europe’s Energy Crunch Drives Up U.S. Gas Prices

Kiplinger's latest forecast on the direction of energy prices

Kiplinger's Economic Outlooks are written by the staff of our weekly Kiplinger Letter and are unavailable elsewhere. Click here for a free issue of The Kiplinger Letter or for more information.

If you already subscribe to the print edition of the Letter, click here to add e-mail delivery and the digital edition at no extra cost.

Have oil prices peaked, now that the United States and other countries are planning to release barrels of crude from their strategic reserves? The U.S. alone says it will release 50 million of the roughly 600 million barrels it holds in underground storage, as a hedge against sudden supply disruptions. This Strategic Petroleum Reserve was conceived as a source of supply to draw on in emergencies, and right now, there is no emergency. But oil and gasoline prices have been rising, helping to spur inflation, and that has apparently convinced President Biden and other leaders of petroleum-importing countries to try to bring down prices. So far, it may be working. Benchmark West Texas Intermediate was recently trading near $79 per barrel, down from the mid-$80s not too long ago.

Looking ahead, we see oil prices edging down, but not because of government actions to bolster supply. Global oil production keeps slowly rebounding from the drop caused by the coronavirus pandemic last year. In the U.S., which remains the world’s top producer, energy firms keep putting new drilling rigs to work, slowly but steadily, and domestic production has been trending higher. OPEC and its partners have been upping their exports in a slow, measured way. Meanwhile, the resurgence of COVID-19 in Europe and elsewhere figure to weigh on fuel demand to some extent, as people travel less. We look for WTI to trade near $75 per barrel this winter, perhaps in a range of a few dollars above or below that mark.

Gasoline prices are near their highest level in years, but they should start to retreat, ever so slightly. At $3.40 per gallon, the national average price of regular unleaded is actually down a penny from a week ago (though it’s still painfully high, compared with a year ago). We look for prices at the pump to slowly retreat as winter begins, though the national average is unlikely to fall below $3. Diesel, now averaging $3.64, probably won’t fall much, now that cold weather is firing up demand for heating oil, diesel’s close chemical cousin.

Prices of natural gas are still high, but no longer climbing as they were earlier this autumn. Mild weather late into the season allowed the U.S. to build up its gas stockpiles to a reasonably healthy level, easing concerns about possible supply shortfalls during the winter. Colder-than-normal weather could still send prices higher again, but barring that, we look for gas futures contracts to hold at or a bit below $5 per million British thermal units. The biggest weather-related price risk may actually be in Europe and Asia, since energy markets are so tight in both regions. If severe cold hits either or both of them, high demand for liquefied gas from the U.S. could cause domestic prices to jump sharply.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The Berkshire Hathaway Portfolio: All 41 Warren Buffett Stocks Ranked
stocks

The Berkshire Hathaway Portfolio: All 41 Warren Buffett Stocks Ranked

The Berkshire Hathaway portfolio is a diverse set of blue chips, and increasingly, lesser-known growth bets. Here's a look at every stock picked by Wa…
November 16, 2021
Resist the Impulse to Buy These 14 Holiday Gifts
shopping

Resist the Impulse to Buy These 14 Holiday Gifts

Don't let those holiday sale promotions persuade you into buying something now that will be much cheaper later.
November 18, 2021

Recommended

Energy Stocks Come Roaring Back
Economic Forecasts

Energy Stocks Come Roaring Back

A combination of tight supplies, rising demand and continued economic growth is fueling the energy sector.
November 24, 2021
There's No Vaccine Against Inflation
Economic Forecasts

There's No Vaccine Against Inflation

Prices should ease in 2022, but inflation will remain above the levels of recent years.
November 23, 2021
Kiplinger's Economic Outlooks
Economic Forecasts

Kiplinger's Economic Outlooks

Regularly updated insights on the economy’s next moves.
November 23, 2021
Tune Up Your Stock Portfolio for 2022
Becoming an Investor

Tune Up Your Stock Portfolio for 2022

The outperformance of stocks in 2021 might leave you a bit more exposed than you should be. The end of the year is a great time to rebalance.
November 3, 2021