Weekly Economic Trends and Indicators
As we move into the winter heating season and look forward to next year, many people wonder about the expected future path of energy prices. Some of the most cited indicators are the price of gasoline, the price of natural gas, and the price of a kilowatt-hour of electricity. These are prices that are familiar to most of us in our everyday experience. Furthermore, people often find it difficult to reduce their consumption of these goods in the short-run when the prices increase. Economists would say that the demand for these goods is inelastic—at least in the short-run. Over longer periods of time, people can change their travel habits, turn down the thermostat, and buy more efficient light bulbs. However, the period of time that it takes to make these adjustments is time that the consumer will be stuck paying higher prices.
The good news is that energy prices are not expected to increase significantly next year. An excellent source of data for current and past energy prices and consumption, as well as forecasts of the same, is the Energy Information Administration. The EIA publishes regular reports and forecasts on many topics related to energy production and consumption.
As of the time of this writing in late November, the EIA is anticipating oil prices to trade in a range of $80 to $100 per barrel in 2024, much like this year. As a result, retail gasoline prices should also fluctuate within a range similar to this year with a national average price near $3.50/gallon being typical. The EIA points to production cuts by the OPEC+ countries, primarily Saudi Arabia, as constraints on supply, but notes that non-OPEC+ countries are increasing their production. Those effects are expected to mostly offset each other and lead to little change in supply. The EIA notes however, that the attacks on Israel and “the potential for tensions spreading to a wider area” could change that outlook if the geopolitical conditions change.
Gasoline consumption in the U.S. has been falling for several years. More fuel-efficient vehicles, electric and hybrid vehicles, and changes in driving habits have been responsible for the decreased consumption. The post-pandemic shift to more remote work has also reduced gasoline consumption according to the EIA. However, they also note that non-commuting related driving may have increased to offset the reduction from remote work. Little change is expected in the new year.
In their report on winter fuels, the EIA expects natural gas prices to be down significantly during the upcoming season. They forecast a 19 percent decrease in average household spending on natural gas during the heating season compared to last year. Current prices are already well below last year’s levels. Finally, electric rates are expected to remain steady next year. Electric rates tend to be less volatile than oil and natural gas, fluctuating in a narrow range and generally following trends in overall inflation.
The EIA goes into considerable detail concerning each of these forecasts and many more. Their analysis is highly recommended for anyone seeking to understand the factors affecting energy prices. Current forecasts bode well for overall inflation as energy price declines have greatly helped bring inflation down throughout 2023.
Next week: GDP revisions and monthly personal consumption
