Jul 20, 2022 - Economy
The energy pinch is easing
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Benchmark prices for energy are falling in commodities markets, taking some of the fuel off of the inflationary fire that U.S. policymakers have been battling.
Driving the news: Both crude oil and wholesale gasoline prices have rolled over since June, signaling that the worst of the recently elevated energy costs might have passed.
The big picture: Prices have eased for a number of demand-related reasons.
- The economy of China — the world's second-largest crude consumer — is quite weak and just posted its slowest quarterly GDP growth since the COVID crisis started.
- Global demand for crude has also been hurt by the surging dollar. Crude oil is priced in dollars, so the greenback's strength makes it far more expensive for buyers outside the U.S.
- Fears of a stateside economic slowdown, which would drag on oil consumption, have also grown, since the worse-than-expected inflation report last week, which raised the risk that the Fed would hammer the economy with higher interest rates.
- U.S. average gasoline prices, above $5 a gallon back in June, had already started nudging consumers to drive less — reducing demand, and resulting in an unexpected increase in gas stockpiles.
The bottom line: It's an ugly process but supply and demand seem to be finding a balance, even if prices are higher than we're used to.
