Crude oil – the primary energy benchmarkArguably the most important energy commodity, changes in crude oil prices may have a wide-ranging effect on economic performance and are immediately noticeable in the pockets of consumers. Crude oil is the main raw material used for a variety of motor fuels and industrial products such as plastics. In 2021, when many countries saw a loosening of pandemic restrictions, greater fuel demand brought about a notable rise in crude oil prices across all major benchmarks. In the span of two years, prices for the OPEC basket, Europe’s Brent oil, and the U.S. West Texas Intermediate rose from a pandemic low of less than 20 U.S. dollars to a 15-year high of over 120 U.S. dollars by mid-2022. This price hike has increased the risk of stagflation, with many businesses and consumers struggling to pay record-high fuel prices.
How natural gas, coal, and uranium prices shape the energy sectorNatural gas, coal, and uranium are the dominant fuel types used by the energy sector for the generation of electricity and heat. Although coal and natural gas are also used for chemicals and steel manufacturing, price changes are more often a reflection of changes in electricity demand. In China, where coal is the largest source of power production, greater power demand in the fall of 2021 resulted in China’s coal marker spot price nearly doubling that year. Meanwhile, in Europe, Dutch TTF gas futures recorded multiple spikes in the months following Russia’s invasion of Ukraine. With pipeline flows at times severely restricted or stopped altogether, market uncertainty remains over the future security of gas supplies to the continent, which is reflected in the volatile development of these prices.
A rise in any of these commodities has immediate repercussions for retail electricity prices. Due to the costs associated with purchasing fuels, coal and gas also have notably higher levelized costs than renewable sources such as wind and solar.