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US gasoline prices are now cheaper than they were one year ago, providing relief to Americans that have spent 2022 grappling with the worst inflation in decades.
Patrick De Haan, head of petroleum analysis at GasBuddy, said on Wednesday that gas deflation is alive and well, as prices have been particularly steep in California.
The lower energy prices could help reduce consumer inflation. The US consumer price index had its lowest reading of the year in October. Data for November arrives next week.
There are sources of uncertainty. The Organization of the Petroleum Exporting Countries decided on Sunday to stick with its existing plan of cutting production by 2% over the next three years. If the group were to set even harsher limits on output, it could drive up prices again.
Both Brent crude futures, the global benchmark, and West Texas Intermediate futures, the go-to for US prices, have dropped almost 10% so far this week, hitting their lowest levels of the year.
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A recovery in demand in China, which recently ditched its strict zero-Covid policy, could also push prices higher again, according to a Deutsche Bank analysis released last month.
Wholesale European gas prices, as measured by the benchmark Dutch futures contract, have dropped almost 48% since mid-December to trade at €71 ($74) per megawatt hour on Friday — roughly where they stood on February 15 last year, a little over a week before Moscow’s unprovoked assault on its neighbor. Prices are now nearly 80% below their all-time August high of €346 ($364) per megawatt hour.
In the United States, the cost of wholesale gas flowing through the Henry Hub pipeline — which serves as the country’s price benchmark — has dropped 50% to $3.68 per million British thermal units (Mbtu) since late November, back to around levels last seen in December 2021.
Europe can also thank a record-breaking spell of warm weather, as well as its own barnstorming effort last summer to fill gas storage, despite a slump in imports from Russia, its biggest supplier before the war.
There was no panic last year about Europe being forced to ration gas over the winter, according to an executive from the Eurasia Group.
It’s encouraging news for the millions of households and businesses across the continent who have struggled to pay their soaring energy bills. Analysts told CNN that they aren’t going to expect immediate relief.
According to Gas Infrastructure Europe, the continent’s storage facilities are currently 83% full. The EU averaged a 69% in the five years to 2021.
Di Odoardo estimated that residential demand for gas dropped by a fifth in November. Industrial consumers switched fuels and found efficiency, which resulted in a 20% cut in demand in the final half of the year, compared with the same period the year before.
Europe has rapidly learned to live without Russian gas after Moscow slashed its pipeline exports last year. The bloc has boosted imports from Norway and snapped up supplies of liquefied natural gas — a chilled, liquid form of gas that can be transported via sea tankers — mostly from the United States and Qatar.
The continent has also raced to build the facilities needed to receive LNG via ships and convert it into gas that can be transported through pipelines. The bloc’s biggest consumer of gas opened two regasification terminals and plans to have another two online in the next few days.
Still, as the continent looks to fill its stores ahead of next winter with very little Russian gas, problems could arise. The task is likely to cost a lot of money due to how vulnerable the bloc is to price rises in a tight market. A pipeline outage in Norway, or a drop in US exports caused by extreme weather, could feasibly trigger a price spike.
The prices at the wholesale level shot up in the months prior to the war. Then, a surge in prices following Moscow’s invasion sent consumer bills soaring further and forced governments to stump up huge subsidies.
According to an analysis by Bruegel, a Brussels-based think tank, European governments, including the United Kingdom, committed around €705 billion ($739 billion) between September 2021 and last November to help shield consumers from painful rises to their bills.
Source: https://www.cnn.com/2023/01/06/energy/natural-gas-pre-war-price/index.html
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He said it would take some time for the fall in wholesale prices of natural gas to feed into the retail prices. “We’re not really out of the woods,” he added.
If market prices drop below the government’s annual cap, household bills could start to fall. The country’s businesses could feel the impact of lower wholesale prices sooner, when the government withdraws its support in April.
“As energy suppliers buy their gas and electricity in advance to fix some of their costs, wholesale price decreases are not immediately passed through to consumers,” Lausberg said.
“For companies that have a business model where energy represents a good chunk of their costs, they could be incentivized to move to the US,” Sgaravatti said. “So that is a bit of a worry.”