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What’s happening with energy and where gasoline prices might go

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Oil condition

This year has been particularly volatile for energy markets, in line with the general uncertainty affecting both Wall Street and Main Street. Oil prices, in particular, jumped in response to Russia’s invasion of Ukraine, with Brent, the international benchmark, above $100 a barrel for the first time since 2014.

Meanwhile, oil prices have come under pressure in recent weeks. This is due to macroeconomic factors, including a fall in demand as a result of higher prices and higher interest rates, which can push the economy into recession, further reducing demand. However, there was a new development this week when Russia announced that it would cut natural gas supplies to Europe to just 20% of capacity. Analysts say this could have a long-term ripple effect on oil prices.

Substitutions and inflation

A trip to the grocery store offers an instant view of inflation in 2022. The fuel required to drive and the prices on the shelves are high. In response, some shoppers are opting for cheaper brands. This type of swap may also occur for European consumers on the energy front. Since Russia intends to reduce the supply of natural gas, its price will increase due to limited supplies. This may lead to a general shift to petroleum products such as diesel fuel, increasing demand for oil.

Digging into the numbers reveals how energy contributes to inflation. Rising crude oil prices have seen petrol prices rise 60% over the past 12 months. The rise in natural gas prices contributed to a 13% jump in electricity prices.

Refinery capacity

U.S. consumers may face higher gas prices in the coming years, analysis shows. Although prices have actually fallen from their highs in recent weeks, the national average remains above $4.25 per gallon, not far from the March record. Generally speaking, oil prices are in a tug-of-war between concerns about tight supply and worries about a recession.

Industry experts warn that the longer-term concern is related to the decline in the capacity of oil refineries in the United States. Refineries turn crude oil into gasoline and other petroleum products. Because of climate change and other factors, U.S. fuel production capacity has declined by about 5%, meaning a million barrels less are being refined per day. This trend suggests that American consumers will likely be concerned about gasoline prices for years to come.

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