Gas prices trend up for the first time in months as a bitter economic cocktail brews
The streak’s over… and pump anxiety returns: Last week US gas prices rose for the first time in nearly 100 days. On Wednesday, the average price of a good old-fashioned gallon ticked up to $3.68. That’s nowhere near the $5 average in mid-June, but prices might keep rising. A few things that could make the energy crisis worse:
- War: On Wednesday, Russian President Putin declared a “partial mobilization” of 300K reservists to fight in Ukraine — and even made a nuclear threat.
- Weather: Hurricane season could cause supply disruptions, with Hurricane Fiona hitting Category 4 on Wednesday.
A bitter cocktail… Gas is just one ingredient. At the base we have inflation, which is weakening consumer demand as it sticks near 40-year highs. To fight the inflation Grinch, we have something just as painful: soaring interest rates. Last week the Fed approved its third “jumbo” hike and signaled more are likely (several other central banks also lifted rates). Mix in a looming energy crisis, and the dark-and-stormy combo is complete:
- Earlier this month: Russia’s Gazprom indefinitely shut down natural-gas flows to Europe, blaming Western sanctions. This year Europe’s electricity bills have nearly 4X’d.
- Last week: Germany announced it would nationalize Uniper (its biggest Russian-gas importer) as Europe races to store supplies to keep homes warm this winter.
Uncertainty hurts most, but does help some… While most sectors have tanked, energy stocks like Occidental Petroleum and Valero have had a banner year. Considering gas prices, it’s no surprise that energy has been the best-performing sector, followed by utilities. Meanwhile, growth stocks that rely heavily on the prospect of big future returns (think: tech) have plunged. A dollar today is worth more than a dollar in a year, and rising interest rates incentivize investors to earn off their cash now (think: savings accounts, bonds). Meanwhile, some investors are turning to slower-growing companies with historically stable earnings vs. unprofitable growth companies.