Prices for crude oil hit highs above $70 a barrel amid a broad surge in the price of commodities analysts expect to be in higher demand as the global economy reopens. Brent Crude, an international energy benchmark, rose 2.7% to $71.17 a barrel Tuesday, its highest mark since May 2019. The U.S.-based West Texas Intermediate gained more than 3% to $68.65 a barrel for its highest price since June 2018.
Tuesday's price jumps came after the Organization of the Petroleum Exporting Countries and their allies, known as OPEC+, agreed to keep plans to gradually increase oil production through July, forecasting accelerating energy demand in the second half of the year that they say will bring an end to the pandemic-era oil glut.
Unless you're a professional trader, chances are you're not dealing in crude oil. But swings in energy prices can have ripple effects that can reach your bottom line. Here are three to consider.
1. You'll likely pay more at the pump
The price of crude oil generally dictates the price of gasoline, and even before the most recent pop in prices, experts expected it to be an expensive summer for drivers.
"Gas prices were already returning to their pre-pandemic place, and that was because of growing demand for gasoline," Devin Gladden, spokesperson for AAA, recently told Grow. Higher crude prices in combination with the introduction of pricier summer gas blends means "it will be a more expensive summer," he added.
As of Wednesday, the national average is $3.04 per gallon, according to AAA. That's up from $2.90 a month ago, and up from $1.98 a year ago.
2. Your energy stocks could perk up
Higher crude prices are great news for energy firms, which can earn more selling, transporting, and refining the black stuff at higher prices. It's been a tough several years for investors in the sector. Although energy stocks in the S&P 500 have bounced 94% from their March 2020 low, they'd still need to gain another 82% to get back to their highs of July 2014.
Some market experts see this as the beginning of a renaissance for energy stocks. Fundstrat Global Advisors co-founder Tom Lee expects the sector to deliver strong returns over the next five years. "I think energy has the potential to be transformative to someone's portfolio return," he said in a recent appearance on CNBC's "Fast Money."
Energy stocks currently account for about 3% of the S&P 500.
3. The economy could eventually dip
A prolonged period of rising energy prices is thought to boost inflation and reduce economic growth. That's because, in addition to boosting gasoline prices, high energy costs hike the prices of goods and services provided by energy-intensive industries that have to spend more to move stuff around (think airlines, and businesses that have to ship products cross-country). That can make it more difficult for consumers to spend money on non-oil-intensive areas of the economy.
But an economic slowdown shouldn't be an immediate concern. Oil is just one commodity, along with tin, copper, and lumber, that has seen prices rise in line with spikes in demand as the global economy comes back to life post-pandemic.
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