Move over murder hornets, there’s a new issue that we need to discuss. After the energy market fell to (literally) below-zero prices in 2020, in 2021 prices are back on the rise. Crude U.S. oil has hit its highest prices since 2014, European natural gas has hit similar highs, and storms have shut down coal mines across China.
“Those moves in fuel prices led Goldman Sachs to downgrade shares of American Airlines (AAL) - Get American Airlines Group, Inc. Report and JetBlue (JBLU) - Get JetBlue Airways Corporation Report” the team wrote on Real Money recently. “In addition to those inflationary pressures, following recent manufacturing blackouts in China, surging energy prices are fueling concerns about the potential impact on global manufacturing activity and consumer spending as we head into the winter months.”
In addition, “Energy prices are built into absolutely every step of the production chain. Consumer prices reflect the energy it costs to run manufacturing machines, the price of fuel for boats and planes to ship those products around the world, the price of gas to drive those products the last mile, the price of electricity in every office attached to those processes and much, much more."
The effect is that "this adds overhead to literally every pair of hands that touches a product in the supply chain, which means rising energy prices will almost certainly contribute to ongoing concerns over inflation.”
Nevertheless, energy remains one of the most volatile sectors of the economy, so much so that it isn’t included in core monthly inflation data for the sake of consistency. “Rising prices in September and October might continue into the winter… or they may reverse themselves just as quickly.”
This adds unpredictability to the market, and ultimately more questions than answers.