Here’s Why you’re Paying More for Energy this Year

It’s no secret that energy prices have skyrocketed. You saw it at the gas pump all summer, you feel it in your utility bill. And you’ve probably heard that energy rates are going up this fall.

There’s a lot of conflicting information swirling around about the energy price increases. And even though we’re currently seeing a price dip at the pumps, you’ve probably been hearing and reading about the increases that are coming this winter. It can be difficult to separate the facts from the fear-mongering, so we’ve done our best to take an objective look at what’s going on in the world and how we know it’s impacting energy prices—no speculation here; just the facts.

Ukraine, Russia and the EU

In response to the war in Ukraine, the European Union banned Russian oil imports. That ban goes into effect on December 5th, 2022.

Currently, officials from the Group of Seven (G7) plan on enforcing a cap on Russian oil prices starting in December. Russia’s response was that should this happen, it will stop selling oil to countries that impose this cap…which, according to analysts, will cause oil prices to increase.

As we inch closer to that date, our domestic million-barrels-per-day emergency oil reserves release will expire in October.

Energy Prices and the US Supply Chain

The US is currently tapping into its emergency oil reserves, but that’s slated to end in October 2022. Even if President Biden opts to renew this release, we can’t draw from the reserves forever—they’re currently at their lowest point since 1984.

Our domestic energy issue isn’t just oil. Natural gas prices are currently at a 14-year high. There are a few reasons why:

  • A hot, hot summer had people cranking the AC, sucking up electricity (which is largely produced using natural gas)
  • Low natural gas inventory levels in the US

Natural gas inventory is down here because production is down. Production is down for a few reasons:

  • Decreased demand during the COVID lockdowns (less driving, entire buildings and complexes closed). Production still hasn’t gotten back to where it was pre-lockdowns
  • Wall Street putting pressure on oil and gas companies to focus on returning cash to investors via stock buybacks and dividends

 

What does this Mean for my Business, my Home, and My Family?

To put it bluntly, energy prices are going up. According to analysts cited by USA Today, there’s still room for them to rise.

The tough truth is, there’s no easy solution to the rising energy prices. Like every other market, the energy market is driven by supply and demand. With one of Europe’s main suppliers suddenly exiting their market, Europe is scrambling to keep residents supplied—and that has a ripple effect on markets across the globe.

In the long-term, we could see a pivot to increase production or to aggressively invest in other energy sources. It’s quite possible we’ll see both. In the short-term, we’re paying more to keep our homes and businesses lit and warm.

Work with an Experienced Accounting Firm

When energy prices surge, they affect all of us. As a business owner, you know this is just one of the costs of doing business. The most effective way to weather the dramatic ups and downs the market throws at us is to have a whole-picture accountant and advisor manage your company’s finances.

To schedule your initial consultation with a member of Sax LLP, contact our office today.

 



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