Do energy prices move together?
Date posted: March 30, 2011
When we hear oil prices are rising, we know that the increases will eventually come to gas at the pump. But does this also mean we will pay more to heat our homes or our hot water? N.C. State University economist Mike Walden responds.
“Well the answer is yes, of course, … if you are using home heating oil which has an oil base. But if in the last few years, you have been using natural gas, for example, to heat your home or heat your hot water, actually you have enjoyed a reduction in costs. Prices of natural gas have gone down, and, indeed, this is one of the most interesting trends that energy economists have seen in the last few years. That is, while oil prices have gone up, natural gas prices have come down. So that shows you that those are really two different markets.
“Oil is an international market — has international demand and supply. Also oil can be moved. Natural gas, on the other hand, tends to be a very limited market, limited to a particular country. Natural gas is actually hard to move. You need a pipeline, and you can’t put the natural gas on a ship and send it to another country unless you liquefy it. And that is a very expensive process.
“So what we have enjoyed here in the US is an expansion, a dramatic expansion (of) natural gas supplies, and that has pushed down natural gas prices. And some would say this couldn’t have come at a better time. While we are paying more at the pump, we may be paying less to heat our home and heat our hot water.”
Category: Economic Perspective